Regulatory Costs of Being Public: Evidence from Bunching Estimation

Michael Ewens, Kairong Xiao and Ting Xu

No 29143, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The increased burden of disclosure and governance regulations is often cited as a key reason for the significant decline in the number of publicly-listed companies in the U.S. We explore the connection between regulatory costs and the number of listed firms by exploiting a regulatory quirk: many rules 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 lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm. Regulatory costs have a greater impact on private firms’ IPO decisions than on public firms’ going private decisions. However, heightened regulatory costs only explain a small fraction of the decline in the number of public firms.

JEL-codes: G28 G32 K22 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-isf and nep-reg
Note: CF
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Published as Michael Ewens & Kairong Xiao & Ting Xu, 2024. "Regulatory costs of being public: Evidence from bunching estimation," Journal of Financial Economics, vol 153.

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Working Paper: Regulatory Costs of Being Public: Evidence from Bunching Estimation (2020)
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