Regulatory Intensity and Firm-Specific Exposure

Review of Financial Studies, 36(8), August 2023, Pages 3311-3347

82 Pages Posted: 19 Sep 2019 Last revised: 29 Aug 2023

See all articles by Joseph Kalmenovitz

Joseph Kalmenovitz

University of Rochester - Simon Business School

Date Written: September 10, 2019

Abstract

Building on administrative data and machine-learning models, I develop a firm-specific measure of regulatory intensity: cost of compliance with all federal paperwork regulations. Regulatory intensity increases the cost of goods sold and overhead spending (SGA). It also incentivizes companies to reduce capital investment, hire fewer employees, and lobby more. The effects are particularly strong among financially constrained firms and those with irreversible investment opportunities, suggesting that regulation affects companies through budgetary pressures and heightened uncertainty. The findings highlight the real effects of regulation and the underlying mechanisms.

Keywords: Corporate Regulation, Profitability, Labor, Investment

JEL Classification: G18, G31, K22, K23, J01

Suggested Citation

Kalmenovitz, Joseph, Regulatory Intensity and Firm-Specific Exposure (September 10, 2019). Review of Financial Studies, 36(8), August 2023, Pages 3311-3347, Available at SSRN: https://ssrn.com/abstract=3451344 or http://dx.doi.org/10.2139/ssrn.3451344

Joseph Kalmenovitz (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://sites.google.com/view/jkalmenovitz

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