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Law Change in a Regulated Sector Impacts Other Regulated Sectors: Evidence from Brazil

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  • Felipe Filgueiras, Elias Cavalcante-Filho, Rodrigo de Losso, José Roberto Savoia
Abstract
This paper shows that a change in systematic risk of a regulated sector affects the regulatory environment by changing also the systematic risk of other sectors not directly affected by the intervention. We consider the Provisional Act. no. 579/2012 (PA 579) aimed at reducing power fees for Brazilian consumers. However, it has led to other consequences, including uncertainties about the rules for renewals of existing concessions. The analysis of systematic risk uses time-varying betas from 140 companies listed on the Brazilian Stock Market between January 2008 and September 2016. Based on both synthetic control and Dif-in-Dif methodologies, we conclude that the PA 579 increased the systemic risk not only of the sector it regulates, but also of other regulated sector in Brazil, suggesting a contagion effect on the country's regulatory environment.

Suggested Citation

  • Felipe Filgueiras, Elias Cavalcante-Filho, Rodrigo de Losso, José Roberto Savoia, 2019. "Law Change in a Regulated Sector Impacts Other Regulated Sectors: Evidence from Brazil," Working Papers, Department of Economics 2019_27, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2019wpecon27
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    References listed on IDEAS

    as
    1. Bruno Ferman & Cristine Pinto & Vitor Possebom, 2020. "Cherry Picking with Synthetic Controls," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(2), pages 510-532, March.
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    8. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    9. Amiyatosh Purnanandam & Daniel Weagley, 2016. "Can Markets Discipline Government Agencies? Evidence from the Weather Derivatives Market," Journal of Finance, American Finance Association, vol. 71(1), pages 303-334, February.
    10. Kaul, Ashok & Klößner, Stefan & Pfeifer, Gregor & Schieler, Manuel, 2015. "Synthetic Control Methods: Never Use All Pre-Intervention Outcomes Together With Covariates," MPRA Paper 83790, University Library of Munich, Germany.
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    More about this item

    Keywords

    Finance; Provisional Act; Contagion effect; Regulation; Regulatory impact;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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