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MARKET POWER AND THE REQUIRED RETURN TO ELECTRIC UTILITIES
Author(s) -
Goldenberg David H.
Publication year - 1987
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1987.tb00325.x
Subject(s) - economics , econometrics , imperfect , equity (law) , market power , leverage (statistics) , microeconomics , computer science , linguistics , philosophy , machine learning , political science , law , monopoly
Recent tests of the ability of powerful firms to reduce their costs of equity capital through a reduction in the systematic risks of their common stock have generated mixed empirical support. This article tests the joint hypothesis of imperfect regulation and of a negative relationship between market power and the betas of a sample of regulated utilities. This study explicitly recognizes beta and alpha instability by estimating the nonstationary parameter market model in a one‐step procedure using econometric methods that efficiently utilize the available cross sectional time‐series data. Further, market value measures of financial leverage are computed and used in the tests as required by theory.