The ‘duty to finance’, the cost of capital and the capital structure of regulated utilities: Lessons from the UK

Tapia, Javier

doi:10.1016/j.jup.2012.02.003

Cited by 9 publications

(6 citation statements)

References 31 publications

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“…Post a detailed literature review as a part of this study, it could be concluded that the existing body of literature mostly explored the impact of regulatory announcements on systemic risk and cost of equity capital in developed countries like the USA and UK (Wright et al , 2003; Pedell, 2006). In some of the developed countries, the extent of regulation was not too strong as regulatory announcements impacted systemic risk, i.e., regulatory risk existed (Tapia, 2012). If regulatory announcements impact the systemic risk, then the extent of regulation is not strong and vice versa (Tapia, 2012).…”

Section: Introductionmentioning

confidence: 99%

“…In some of the developed countries, the extent of regulation was not too strong as regulatory announcements impacted systemic risk, i.e., regulatory risk existed (Tapia, 2012). If regulatory announcements impact the systemic risk, then the extent of regulation is not strong and vice versa (Tapia, 2012). It is, therefore, necessary to ascertain the extent of regulation in developing countries, especially in India, in contrast with developed counties.…”

Section: Introductionmentioning

confidence: 99%

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Impact of regulatory announcements on systemic risk in the Indian telecom sector

Yalla

Bhattacharyya

Jain

2018

IJOEM

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Purpose Post 1991, given the advent of liberalization and economic reforms, the Indian telecom sector witnessed a remarkable growth in terms of subscriber base and reduced competitive tariff among the service providers. The purpose of this paper is to estimate the impact of regulatory announcements on systemic risk among the Indian telecom firms. Design/methodology/approach This study employed a two-step methodology to measure the impact of regulatory announcements on systemic risk. In the first step, CAPM along with the Kalman filter was used to estimate the daily β (systemic risk). In the second step, event study methodology was used to assess the impact of regulatory announcements on daily β derived from the first step. Findings The results of this study indicate that regulatory announcements did impact systemic risk among telecom firms. The study also found that regulatory announcements either increased or decreased systemic risk, depending upon the type of regulatory announcements. Further, this study estimated the market-perceived regulatory risk premiums for individual telecom firms. Research limitations/implications The regulatory risk premium was either positive or negative, depending upon the different types of regulatory announcements for the telecom sector firms. Thus, this study contributes to the theory of literature by testing the buffering hypothesis in the context of Indian telecom firms. Practical implications The study findings will be useful for investors and policy-makers to estimate the regulatory risk premium as and when there is an anticipated regulatory announcement in the Indian telecom sector. Originality/value This is one of the first research studies in exploring regulatory risk among the Indian telecom firms. The research findings indicate that regulatory risk does exist in the telecom firms of India.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Impact of regulatory announcements on systemic risk in the Indian telecom sector

Yalla

Bhattacharyya

Jain

2018

IJOEM

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“…In sum, EIB finance was initially guided by regional development objectives in the early period, was disrupted and converted in a political one associated with the new energy paradigm, and, finally, emerged as a market-based logic, bolstering the Single Market project. Tapia (2012) observed that the availability, access to and nature of finance is a key factor in understanding how utilities develop. In the recent period, important studies have provided insight into the complex and changing ways by which utilities have been financed over the longer term.…”

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confidence: 99%

Financing utilities: How the role of the European Investment Bank shifted from regional development to making markets

2014

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“…The UK water industry price cap has been discussed in detail in the literature, including a detailed analysis of the relevance of WACC to this process and issues specifically associated with the WACC calculation (Alexander and Irwin 1996, Cooper and Currie 1999, Ogden and Watson 1999, Crowther et al 2001, Saal and Parker 2001, Day 2003, Kessides 2005, Cowan 2006, Riley and Tyson 2006, Erbetta and Cave 2007, Zahariadis 2007, Portela et al 2011, Armitage 2012, Tapia 2012, Byatt 2013, Reynaud and Thomas 2013, Watch 2013, Decker 2014. However, there is minimal literature that specifically considers the impact of WACC reductions in the context of an analysis of institutional isomorphism and stakeholder outcomes.…”

Section: Price Cap Regulation: the Role Of Cost Of Capitalmentioning

confidence: 99%

The impact of cost of capital reductions on regulated water utilities in England and Wales: an analysis of isomorphism and stakeholder outcomes

Ryan

Dunham

2018

J Manag Gov

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This paper investigates the impacts of price cap regulation-weighted average cost of capital reductions determined by The Water Services Regulation Authority (Ofwat)on the internal actions of regulated water companies in England and Wales through an application of the theory of institutional isomorphism. More specifically, the paper examines the potential impacts of the most recent 2014 PR14 reduction on (i) potential homogeneity of regulated firm behaviour and (ii) the likely impact on stakeholders, including shareholders, consumers, and employees of regulated water companies. We hypothesize that firms face isomorphic pressures in the wake of WAAC reductions that influence firm behaviour regarding financing, investment decisions, profitability and returns to shareholders, service quality and consumer price, and impact on employees and employment levels. The methods utilized include a targeted analysis of available reported water industry annual reports and financial statements and semi-structured interviews with industry professionals. Interview results reveal that companies will utilise debt to fund investment in the future, with a smaller proportion of retained earnings, and that the PR14 reduction would result in downward pressure regarding water companies' credit ratings. Interviewees stated that the WACC had minimal impact on investment decision-making, but may reduce profitability and returns to shareholders. Regarding service levels and quality, interviewees predict that service levels will remain the same, while consumer prices will decrease or remain the same. Trends towards potential employee reductions were evident through redundancies or the merging of departments.

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The ‘duty to finance’, the cost of capital and the capital structure of regulated utilities: Lessons from the UK

Cited by 9 publications

References 31 publications

Impact of regulatory announcements on systemic risk in the Indian telecom sector

Impact of regulatory announcements on systemic risk in the Indian telecom sector

Financing utilities: How the role of the European Investment Bank shifted from regional development to making markets

The impact of cost of capital reductions on regulated water utilities in England and Wales: an analysis of isomorphism and stakeholder outcomes

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