Working Paper: NBER ID: w29143
Authors: Michael Ewens; Kairong Xiao; Ting Xu
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.
Keywords: regulatory costs; public firms; IPO; bunching estimation
JEL Codes: G28; G32; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| regulatory costs (L51) | likelihood of initial public offerings (IPOs) (G24) |
| regulatory costs (L51) | decisions to go private (L33) |
| regulatory costs (L51) | choice between public and private status (H42) |