Risk ascertained determinants of cost of equity capital - a comparative analysis across regulated sectors in India

Abstract

India is one of the developing economies where there is a lack of basic infrastructure. To boost up the flow of investments in Indian regulated sectors, and also to arrive a fair rate of return in these sectors; it is necessary to estimate the risk ascertained determinants of cost of equity capital. Empirical studies of this nature from the Indian context are scarce. The present study analyses the risk ascertained determinants of the cost of equity capital across a panel data of three regulated sectors of India, namely power sector, telecom sector and oil and gas sector. The study has adopted a methodology of multivariate regression to assess the risk ascertained determinants of the cost of equity capital. The research findings indicated that regulatory risk factor is significant for the telecom and power sector; on the contrary, regulatory risk factor is not significant for the oil and gas sector. Hence, on sectorial level, regulatory risk exists in Indian telecom and power sectors.