SYSTEMATIC RISK, FINANCIAL DATA, AND BOND RATING RELATIONSHIPS IN A REGULATED INDUSTRY ENVIRONMENT

A MULTIVARIATE STATISTICAL APPROACH IS USED TO EXPLAIN CHANGES IN SYSTEMATIC RISK, AND RELATIONSHIPS BETWEEN SYSTEMATIC AND ELECTRIC UTILITY BOND RATINGS ARE EXAMINED. DIRECT COMPARISON OF THE 1962-66 VERSUS 1967-71 BETA ESTIMATES INDICATE A SIGNIFICANT DIFFERENCE OR CHANGE IN THE MEAN VALUES FOR THE 71 FIRM SAMPLE. THE BETA CORRELATIONS BETWEEN THE TWO PERIODS ARE QUITE LOW, SUGGESTING THAT NOT ONLY HAS THERE BEEN A SIGNIFICANT CHANGE IN THE AVERAGE LEVEL OF BETAS, BUT ESTIMATED BETAS ALSO CHANGED VERY SUBSTANTIALLY FOR INDIVIDUAL FIRMS. BETA AVERAGES BY BOND RATING WERE NOT FOUND TO BE SIGNIFICANTLY DIFFERENT. AN ATTEMPT TO EXPLAIN CHANGES IN THE BETAS OF ELECTRIC UTILITY FIRMS PRODUCED LESS THAN TOTAL SATISFYING RESULTS. ONLY APPROXIMATELY 25 PER CENT OF THE RELATIVE CHANGES IN BETAS WAS DETERMINED WHETHER A RELATIVELY HIGH BETA IN A LOW BETA INDUSTRY IS DESIRABLE OR UNDESIRABLE. CHARTS.