The Effects of the Liberalization of the Spanish Electricity Industry on the Shares of Endesa, Iberdrola and Union Fenosa

Abstract

The liberalization of Spanish electrical industry began in 1998. One year before Endesa, a public electrical company, was privatized. The liberalization project in electric industry was completed in 2003. This work shows that liberalization implied relevant changes on the risk and performance of the shares of the three main companies in this industry: Endesa, Iberdorla and Union Fenosa. On the one hand, their beta coefficients decreased, although in last two years, for Endesa and Iberdrola they have risen to the values they had before liberalization. After the liberalization, the risk-return performance measures of Iberdrola and union Fenosa improved, while the ones of Endesa decreased substantially, probably due to the fact that the shares of this company become overvalued in the year of this privatization. Finally, we also study the shareholders value creation and the evolution of shareholders rate of return. The electrical industry liberalization was simultaneous to the stock market crisis that followed the Internet bubble. This crisis had a greater impact on Endesa's shares than on the shares of Iberdrola and Uniýn Fenosa. We conclude that the liberalization of electrical industry in Spain, together with the strategies adopted by these three companies, has created value for shareholders.