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ABSTRACTThis paper tests empirically whether regulation characterized by high incentives implies more risk to firms than regulation characterized by low incentives. Using a worldwide panel of 170 regulated companies operating in electricity, gas, water, telecommunication and transportation sectors during the period 1995–2004, I find that different regulatory regimes do not result in different levels of risk to their regulated firms. This result could be driven by a higher level of development of financial markets combined with a sophisticated diversifying behaviour of regulated firms.