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Rate-of-Return Attrition and Inflation-Induced Penalties in Public Utility Common Stocks

Abstract:
While the rate of inflation seems to be easing, the interest in its impact on corporate security prices (Feldstein, 1980) and on corporate investment policy (Caks, 1981; Higgins, 1977) has continued. Unlike nonregulated firms, utilities face the added difficulties of regulation-induced inflation penalties and return on equity (ROE) attrition.

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Energy Specializations: Energy Investment and Finance – Corporate Strategy; Electricity – Policy and Regulation

JEL Codes: L94: Electric Utilities, L95: Gas Utilities; Pipelines; Water Utilities, G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity, G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, G11: Portfolio Choice; Investment Decisions, D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, G12: Asset Pricing; Trading Volume; Bond Interest Rates, D22: Firm Behavior: Empirical Analysis, E31: Price Level; Inflation; Deflation

Keywords: Rate of return attrition, Public utility stocks, Corporate investment policy, Regulation induced inflation penalties

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No4-6


Published in Volume 5, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.