Anticipated effects of rate controls are best observed in abnormalreturns in sectors providing complements and substitutes to the sector targeted for regulation. Further, risk may rise in response to rate controls, increasing the cost of capital and lowering investment. We examine stock price movements during events tied to the 1992 Cable Act, which reinstituted price controls on U.S. cable TV operators. We find strong evidence that controls were not anticipated to lower quality-adjusted cable rates. In addition, the uncertaintyof the policy led to substantially increased stock betas in some sectors.
Review of Industrial Organization – Springer Journals
Published: Oct 3, 2004
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