Electric Utility Rate Regulation and the Impact on the Returns of Power Company Stocks

Abstract

ABSTRACTThis article investigates, using event study methodology, the impact of economic regulation implemented by Provisional Measure 579/2012 (in Portuguese Medida Provisória), promulgated on September 11, 2012 (Brasil, 2012), which became Law 12.783/2013 on January 11, 2013 (Brasil, 2013), on the returns of Brazilian power company stocks. According to the proposed aims of this study, the research is descriptive. In relation to the approach to the problem, it is quantitative; and according to the technical procedures of data collection, the work includes characteristics inherent to documentary research. The study focuses on abnormal returns of power company stocks, seeking thus to find evidence of the cumulative moving average of such abnormal returns around the event date (t0). Using the Economatica system, variables were collected from power industry companies traded on BM&FBovespa. An event study was conducted of the 24 electric power companies with the highest stock liquidity for the year 2012. The results reflected significant abnormal returns, both before and after the date of publication of PM 579/2012, which may be evidence of possible access to privileged information of the discussions undertaken at public hearings and a delayed market reaction to the approval of the measure. This result means the market needs a few days to adapt to announcements made by the Federal Government, which can be construed as a possible market inefficiency.