Regulation and the financial performance of Canadian agribusinesses

Abstract

Purpose

The purpose of this paper is to investigate the relationships between regulatory changes, returns on equity and stock market valuations for Canadian food and non‐food agribusinesses.

Design/methodology/approach

Two empirical approaches are employed. First, an event study is used to evaluate the impact of official regulatory announcements on the stock market valuations of selected Canadian agribusinesses. Next, an approach introduced by Mishra et al. using the Du Pont expansion is applied to investigate the effect of regulations on firms' accounting profits. Data on Canadian food and non‐food agribusinesses are collected from Bloomberg, Thompson One Banker and SEDAR.

Findings

The event study demonstrates that official regulatory announcement dates do not correspond with abnormal stock market returns for Canadian firms, while the Du Pont model yields mixed evidence with respect to their accounting profits.

Research limitations/implications

This paper only considers publicly traded companies. As a result, survivorship bias may exist. Future research should include privately held and cooperative firms.

Social implications

Food regulations can influence firm profits and shareholder wealth, so understanding how government actions influence agribusiness is important when considering the total costs of current and future food policy.

Originality/value

The interaction between policy and the financial performance of Canada's publicly traded agribusinesses is an under‐researched area and no studies have examined Canadian data. The results of this study are valuable to both policy makers and researchers.

Citation

Schaufele, B. and Sparling, D. (2011), "Regulation and the financial performance of Canadian agribusinesses", Agricultural Finance Review, Vol. 71 No. 2, pp. 201-217. https://doi.org/10.1108/00021461111152573