Working Paper: NBER ID: w26856
Authors: Charles W. Calomiris; Harry Mamaysky; Ruoke Yang
Abstract: We derive a measure of firm-level regulatory exposure from the text of corporate earnings calls. We use this measure to study the effect of regulation on companies’ growth, leverage, profitability, and equity returns. Higher regulatory exposure results in slower sales and asset growth, lower leverage, reduced profitability, but higher post-call equity returns. These effects are mitigated for larger firms. Our findings suggest that both compliance risk and physical operational cost are consequences of increased regulation, but the magnitude of the effects of compliance risk are larger. The topical context of regulation is important for future firm-level outcomes.
Keywords: regulation; corporate performance; text analysis; natural language processing; earnings calls
JEL Codes: G18; G38; K2; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher regulatory exposure (G18) | slower sales and asset growth (G32) |
| higher regulatory exposure (G18) | lower leverage (G19) |
| higher regulatory exposure (G18) | reduced profitability (G32) |
| higher regulatory exposure (G18) | higher post-call equity returns (G12) |
| increased compliance risk (G18) | lower growth (O40) |
| increased compliance risk (G18) | higher future expected stock returns (G17) |
| increased compliance risk (G18) | lower leverage (G19) |
| increased physical operational costs (L99) | reduced growth (O40) |
| increased physical operational costs (L99) | reduced profit margins (L19) |