Regulatory Costs of Being Public: Evidence from Bunching Estimation / Michael Ewens, Kairong Xiao, Ting Xu.

Format:

Book

Author/Creator:

Ewens, Michael.

Contributor:

National Bureau of Economic Research.

Xiao, Kairong.

Xu, Ting.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29143.

NBER working paper series no. w29143

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

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.

Notes:

Print version record

August 2021.