Event Studies of Regulation and New Results on the Effect of the Cigarette Advertising Ban

Questions concerning the effects of regulation on stock returns are important to regulators and investors. Analysts must carefully design and interpret tests of hypotheses regarding these effects because of the nature of the regulatory process and financial markets. I discuss the way to test for the impact of regulation on firm value and required return in an event study. I illustrate with an examination of the 1971 radio and television cigarette advertising ban, and find results at odds with those of an earlier study.