Internal and External Control Mechanisms: The Impact of Alignment on Market and Operating Performance

Internal and External Control Mechanisms: The Impact of Alignment on Market and Operating Performance

300 pages· 2008· ISBN 9780549869870
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The second of these three studies examines the operating and market performance effects of the alignment of internal and external control mechanisms in a sample of 498 electric utility firm-year observations over the 2000--2006 period. Consistent with Stigler's (1971) argument that there is a demand for regulation, the results indicate that market valuation of equity is directly related to the degree of regulation. Furthermore, in this rate-regulated setting, over-investment in management control systems presents a significant risk, and this study finds that regulation increases the effect of free cash flow on investment in management control systems, given price-based regulation in this industry.

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