SHAREHOLDER WEALTH EFFECTS OF LEGISLATIVE EVENTS - THE CASE OF AIRLINE DEREGULATION

This paper presents empirical evidence about the impact on shareholder wealth of legislative events leading to the enactment of the Airline Deregulation Act of 1978. In contrast to prior regulatory event studie s, this paper examines not only the final legislative enactment but al so the Congressional hearings that preceded it. No significant effect on shareholder wealth is indicated when averaged across all airline fi rms and all legislative events. Impact of deregulation, however, was e xpected to be different for trunk airlines than for local airlines. Mo reover, market expectations likely changed with the change in the poli tical climate during the course of deregulation deliberations, from an industry financial health emphasis under a Republican (Ford) administ ration to a consumer welfare emphasis under a Democratic (Carter) admi nistration. We find that trunk airlines experienced significant positi ve abnormal returns during the Ford administration, but negative abnor mal returns during the Carter administration. In contrast, local airli nes exhibited significant negative abnormal returns during both the Fo rd and Carter eras. Systematic risk of both trunk and local airlines a lso increased with the change in the political climate.