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This paper is concerned with examining the determinants of the requested and granted revenue increases for a sample of 49 public utility firms from 1974 to 1979 within the framework of a firm facing a budget constraint that potentially influences its dividend, investment, and financing decisions.

The present study employs a national sample of public utilities rather than the New York and Florida utilities previously examined by Joskow (1972, 1973) and Roberts, Madalla, and Enholm (1978). Also, this study includes the difference between a firm's yield on equity capital and its required rate of return as an explanatory variable in the requested revenue increase equation. Previous studies have used the difference between the last rate allowed by the regulatory commission and the rate of return currently being earned by the firm. It is our contention that the insignificance of the differential rate of return found in the Florida public utility sample reflects a misspecification of the time relationships.