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A legal situation describing the extent to which government regulations enhance or impede earnings growth. The term is used most often in the utilities industry, which must receive government approval for increases in the prices of its products. Generally speaking, the business world favors a regulatory climate with as little government oversight as possible, as this usually enables higher profits. Critics allege, however, that this sort of regulatory climate encourages unsustainable growth and/or harms the poorer segments of society. See also: Deregulation.
The extent to which a regulated firm or industry is permitted to earn an adequate return on the stockholders' investment. This term is nearly always used in reference to utilities, which are required to obtain approval for rate changes. A favorable regulatory climate generally causes investors to value a company more highly because they expect its earnings to be greater.