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Analyst Following, Cost of Equity Capital, and the Information Environment: Evidence from the Electric Utility Industry
Veronda F. Willis,
The University of Texas at San Antonio
ABSTRACT. I examine the effect that deregulation in the electric utility industry has had on the number of analysts following utilities and on utilities’ cost of equity capital. After deregulation, I find a significant decrease in analyst following for both utilities and a control sample but the reduction is less for utilities. This implies that, ceteris paribus, after deregulation, utilities experience a relative increase in analyst following. Furthermore, as analyst following is lower for utilities before deregulation, this results in similar analyst following after deregulation for both samples. In addition, I find that after deregulation, there is a significant increase in cost of equity capital for the utility sample but not for the control sample, which implies that after deregulation, utilities experienced an increase in cost of equity capital. Finally, I do not find a significant change in cost of equity capital for utilities with higher analyst following.
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