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Water as an Investment and the Impact of Regulatory Risk

Yizheng Jin
Yizheng Jin
, 
Rajibur Reza
Rajibur Reza
, 
Bin Li
Bin Li
, 
Eduardo Roca
Eduardo Roca
 e 
Victor Wong
Victor Wong
   | 19 mar 2024
Financial Planning Research Journal's Cover Image
INFORMAZIONI SU QUESTO ARTICOLO
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Pubblicato online: 19 mar 2024
Pagine: 55 - 81
Ricevuto: 25 lug 2018
Accettato: 03 gen 2019
DOI: https://doi.org/10.2478/fprj-2019-0003
© 2019 Yizheng Jin et al., published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 International License.

j.fprj-2019-0001.tab.006

Company Timespan Beta
No. 1 Anhui Grotong Hi-Tech Pipes Industry 2004-2013 0.649
No. 2 Anhui Water Resources 2003-2013 0.904
No. 3 Beijing Capital 2002-2013 0.872
No. 4 China Gezhouba Group 2002-2013 0.748
No. 5 Chongqing Water Group 2010-2013 0.903
No. 6 Fujian Zhangzhou Development 2002-2013 0.820
No. 7 Grandblue Environment 2002-2013 0.606
No. 8 Guangdong Golden Dragon Development 2002-2013 0.896
No. 9 Heilongjiang Interchina Water Treatment 2002-2013 0.233
No. 10 Jiangsu Jiangnan Water 2011-2013 0.543
No. 11 Jiangxi Hongcheng Waterworks 2004-2013 0.780
No. 12 Qianjiang Water Resources 2002-2013 0.859
No. 13 Shanghai Chengtou Holding 2002-2013 0.782
No. 14 Sichuan Guangan AAA Public 2004-2013 0.792
No. 15 Sound Environmental Resources 2002-2013 0.634
No. 16 Tianjin Capital Environmental Protection Group 2002-2013 0.820
No. 17 Wuhan Sanzhen Industry Holding 2002-2013 0.797
No. 18 Xinjiang Urban Construction Group 2003-2013 0.894
No. 19 Zhongshan Public Utilities Group 2002-2013 1.029

The effects of competition, pricing, and quality of service announcements on China’s water industry’s systematic risk without the controlling variables

Regressor Coefficient t-value Adj. R2
Constant γ0 0.804 (67.22)** 0.52
COMP+ γ1 0.011 (0.88)
COMP- γ2 -0.051 (-3.97)**
PRICE+ γ3 -0.057 (-4.72)**
PRICE- γ4 0.032 (2.72)**
QUAL+ γ5 0.035 (4.43)**

The overall effect of regulatory announcements on China’s water industry’s systematic risk

Regressor Coefficient t-value Adj. R2
Constant -0.575 (-15.11)** 0.61
ANNO 0.006 (1.17)

Descriptive statistics

Variable Obs Mean Std. Dev. Min Max
Financial leverage ratio 228 0.754 0.542 0.000 2.474
Operating efficiency ratio 228 -1.212 0.887 -7.264 0.480
Profitability ratio 228 2.438 1.398 0.000 11.068
Liquidity ratio 228 -0.425 0.854 -3.467 2.366
Firm size 228 5.437 2.145 0.000 9.559

The effects of competition, pricing, and quality of service announcements on the systematic risks of individual Chinese water companies

Regressor β1 β2 β3 β4 βs
COMP+ η1 0.081 (0.97) -0.008 (-0.39) -0.015 (-0.63) -0.023 (-1.53) 0.070 (2.16)**
COMP- η2 0.019 (0.97) -0.005 (-0.14) 0.037 (1.04) 0.041 (1.43) - -
PRICE+ η3 -0.058 (-2.43)** -0.043 (-1.54) -0.036 (-1.65)* -0.014 (-0.86) -0.269 (-12.86)**
PRICE- η4 0.024 (0.56) -0.003 (-0.27) -0.003 (-0.12) -0.007 (-0.47) -0.007 (-0.24)
QUAL+ η5 0.013 (0.45) 0.010 (0.80) -0.009 (-0.40) 0.021 (2.60)** 0.006 (0.40)
β6 β7 β8 β9 β10
COMP+ η1 0.001 (0.09) -0.013 (-0.81) 0.026 (1.73)* 0.071 (1.13) 0.001 (0.03)
COMP- η2 -0.040 (-1.67)* 0.018 (1.51) -0.025 (-0.61) -0.074 (-1.35) - -
PRICE+ η3 -0.025 (-1.93)* -0.015 (-0.93) -0.079 (-2.61)** -0.130 (-1.64) - -
PRICE- η4 -0.001 (-0.12) -0.003 (-0.63) 0.033 (1.27) 0.070 (1.18) 0.062 (3.41)**
QUAL+ η5 0.013 (2.07)** 0.002 (0.52) 0.023 (1.59) 0.067 (1.78)* -0.026 (-1.44)
β11 β12 β13 β14 β15
COMP+ η1 0.016 (1.24) 0.003 (0.14) 0.005 (0.41) 0.034 (1.04) -0.012 (-0.84)
COMP- η2 -0.036 (-0.99) -0.006 (-0.32) 0.049 (1.46) -0.039 (-1.45) 0.016 (0.90)
PRICE+ η3 -0.029 (-2.34)** -0.039 (-1.74)* -0.038 (-2.18)** -0.036 (-2.70)** 0.006 (0.47)
PRICE- η4 -0.005 (-0.49) 0.031 (2.00)** 0.029 (3.89)** -0.026 (-2.18)** -0.021 (-1.68)*
QUAL+ η5 0.021 (1.84)* 0.005 (0.51) -0.005 (-0.39) 0.015 (0.63) 0.037 (2.70)**
β16 β17 β18 β19
COMP+ η1 -0.026 (-1.21) -0.010 (-0.90) -0.022 (-0.85) -0.018 (-0.65)
COMP- η2 -0.007 (-0.27) 0.013 (0.54) -0.028 (-0.73) -0.001 (-0.03)
PRICE+ η3 0.003 (0.09) -0.026 (-1.85)* -0.031 (-1.93)* -0.038 (-1.49)
PRICE- η4 0.018 (0.63) 0.014 (2.06)** 0.013 (0.74) -0.014 (-0.59)
QUAL+ η5 0.003 (0.15) 0.013 (1.75)* 0.018 (1.28) 0.048 (2.23)**

j.fprj-2019-0001.tab.007

Year COMP+ COMP- PRICE+ PRICE- QUAL+ Total
2002 1 2 3 - - 6
2003 - 1 1 - - 2
2004 2 - - - 2
2005 2 ? ? 5 7
2006 2 1 1 1 3 8
2007 - - 2 - - 2
2008 - 2 2 - - 4
2009 - - 3 - 1 4
2010 1 - 1 2 - 4
2011 3 - 2 3 8
2012 1 - - 4 5
2013 1 - - 1 2 4
Total 13 6 13 6 18 56

j.fprj-2019-0001.tab.008

1. Announcements that are expected to have a positive effect on competition (COMP+)
May 19, 2009 (State Council). Fasten the reform of public utility services; expand the scope of business permits for water and wastewater services.
January 01, 2011 (State Council). Attract private funds by encouraging municipal-owned companies to invest in the water industry directly and indirectly.
2. Announcements that are expected to have a negative effect on competition (COMP-)
December 10, 2006 (Ministry of Water Resources). Water projects must be supervised and permitted by the Ministry of Water Resources and local water authorities.
April 9, 2008 (Ministry of Water Resources). The supply of water for any projects must be approved and implemented by relevant government bodies.
3. Announcements that are expected to have a positive effect on prices (PRICE+)
April 19, 2010 (Ministry of Development and Reform Commission). Develop a sustainable pricing mechanism by implementing hierarchical water prices.
August 31, 2011 (State Council). Promote hierarchical water prices; include additional wastewater costs in water tariff.
4. Announcements that are expected to have a positive effect on prices (PRICE-)
May 28, 2011 (State Council). Set reasonable water prices in the development of water grids in rural areas.
January 7, 2013 (Ministry of Development and Reform Commission and Ministry of Water Resources). Carefully and fully consider local economic development and consumers’ ability to pay when setting water prices.
5. Announcements that are expected to have a negative effect on quality (QUAL+)
May 28, 2012 (Ministry of Housing, Urban, and Rural Construction). Apply stricter criteria to drinking water quality; drive higher standards; use more advanced technologies in drinking water treatment.
October 2, 2013 (State Council). Apply stricter standards in wastewater management; increase investments in the processing of wastewater.

The effects of competition, pricing, and quality of service announcements on China’s water industry’s systematic risk after controlling for accounting variables

Regressor Coefficient t-value Adj. R2
Constant γ0 -0.557 (-14.61)** 0.61
COMP+ γ1 0.011 (0.95)
COMP- γ2 -0.025 (-2.03)**
PRICE+ γ3 -0.043 (-4.12)**
PRICE- γ4 0.012 (1.15)
QUAL+ γ5 0.020 (2.88)**
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