The Deregulatory Effects of the Telecommunications Act of 1996 on the Broadcasting Industry: Expectations vs. Reality

Document Type

Article

Department or Administrative Unit

Accounting

Publication Date

5-2008

Abstract

The broadcasting industry experienced drastic deregulation with the passage of the Telecommunications Act of 1996. This study examines the capital market reactions to the passage of the Act and aftermath changes in profitability and efficiency in the broadcasting industry. This study finds that the deregulation. particularly relaxing the rules for broadcast ownership. had significant positive effects on stock returns for the broadcasting firms. Among them, firms focusing on broadcasting business and small television groups gained more from the deregulation in terms of increases in market value, as opposed to diversified and large television groups. The longitudinal analysis indicates that the profitability of broadcasting firms in terms of return on sales improved after the Act. This can mainly be attributed to broadcasting firm's increased market power that resulted from increased industry concentration. Profitability in terms of return on assets, however, deteriorated after the Act. which can be attributed to decreased operating efficiency represented by asset turnover. We find no evidence that the deregulation improved the broadcasting industry's efficiency of employees to generate sales. Our findings question the notion that the deregulation would help the industry to improve its operating efficiency by achieving economies of scale.

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This article was originally published in Journal of Accounting and Public Policy. The full-text article from the publisher can be found here.

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Journal

Journal of Accounting and Public Policy

Rights

Copyright © 2008 Elsevier

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