Regulatory risk in the utilities industry: An empirical study of the English-speaking countries

The economic theory on regulation suggests that firms subject to incentive regulation, such as price cap, bear more risk than firms subject to cost plus regulation, such as rate of return regulation. This hypothesis is tested empirically using a sample of 93 regulated companies operating in six English-speaking countries: Australia, Canada, Ireland, New Zealand, UK and USA, during the period 1995–2004. I replicate the methodology of the existing literature and also apply panel data techniques to my sample. The results obtained do not support the hypothesis that price cap regulation imposes more risk.