Inflation and the Return on Equity of Regulated Firms.

David Scott Lindsay

Expert InsightsPublished 1979

It is commonly believed that a constraint on nominal profits induced by the application of a fair rate of return rule leads to a systematic downward repricing of the common stocks of regulated firms relative to those of unregulated firms during a period of inflation. Such an argument, however, ignores the ability of regulated firms to maintain real return by adjusting some dimension of product quality. Controlling for both relative risk and the observed negative relation between market-wide equity returns and inflation reveals no significant negative differential effect of inflation on the equity returns of regulated firms. 15 pp. Ref.

Document Details

  • Copyright: RAND Corporation
  • Availability: Web Only
  • Year: 1979
  • Pages: 15
  • Document Number: P-6350

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Lindsay, David Scott, Inflation and the Return on Equity of Regulated Firms. Santa Monica, CA: RAND Corporation, 1979. https://www.rand.org/pubs/papers/P6350.html.
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