Ownership, regulation, and managerial monitoring in the electric utility industry

This article addresses three issues. First, the sensitivity of managerial turnover in investor-owned electric utilities to changes in owner and customer wealth is examined. Accounting measures of firm performance, allowed returns, and changes in output prices are included. A legit model is estimated to test the hypothesis that managers in regulated utilities are monitored by owners on the basis of regulatory rent-seeking behavior, versus a ''regulatory slack'' hypothesis. The evidence presented here suggests that there is slack with respect to owner wealth, but that changes in customer wealth are important in determining turnover. Second, government-owned firms are included in the investigation of turnover and performance, and the rate of managerial turnover is compared. Third, because significant firm size effects were found, estimates of managerial turnover reported in the Journal of Political Economy were replicated. The inclusion of a firm size variable has important implications for the conclusions reported there.