Regulatory Decision-Making: An Event Study of a Capital Structure Decision

Abstract

A public utility’s earnings are inherently linked to decisions of the regulatory body. In April 2017 Spire Missouri requested a rate increase that, in part, proposed fifty-four percent equity in its capital structure. On January 31, 2018 the regulatory body held an open meeting in which it appeared to allow only fortynine percent equity. While this meeting did not represent a final decision, the signal sent concerning likely capital cost recovery should influence the stock price. Using a single-firm, single-event methodology we find evidence that this one event negatively influenced daily returns by approximately three to four percent beyond expected on a normal trading day.