Measuring the effects of regulation: An event study of the English and Welsh water industry

An event study methodology is used to identify and analyse the key regulatory initiatives taken by the economic regulator of the English and Welsh water industry during the period 1989–1994. By analysing movements in water company share returns relative to the stock market as a whole it is possible to see whether regulatory interventions had any effect on investor expectations. The results are consistent with the rejection of the hypothesis of regulatory capture, and with the view that the economic regulator sought to balance the demands of companies and customers through various policy initiatives.