Regulatory Costs of Being Public: Evidence from Bunching Estimation

Michael Ewens, Kairong Xiao and Ting Xu

No pdv8n, SocArXiv from Center for Open Science

Abstract: Many disclosure and internal governance regulations for U.S. public firms trigger when a firm’s public float exceeds a threshold. Consistent with firms seeking to avoid costly regulation, we document significant bunching around multiple regulatory thresholds introduced from 1992 to 2012. We present a revealed preference estimation strategy that uses this behavior to quantify regulatory costs. Our estimates show that various disclosure and internal governance rules leads to a total compliance cost of 4.3% of the market capitalization for a median U.S. public firm. We apply the estimated costs to firms’ public-private choice and show that regulatory costs significantly impact private firms’ decisions to go public, while have limited effects on public firms’ decisions to go private.

Date: 2020-12-01
New Economics Papers: this item is included in nep-reg
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Working Paper: Regulatory Costs of Being Public: Evidence from Bunching Estimation (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:pdv8n

DOI: 10.31219/osf.io/pdv8n

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