Estimating Firms’ Responses to Securities Regulation Using a Bunching Approach

37 Pages Posted: 3 Aug 2016 Last revised: 1 Oct 2019

Multiple version iconThere are 3 versions of this paper

Date Written: October 31, 2016

Abstract

Many important provisions of US securities law apply only to firms that have a public float (i.e. the market value of shares held by non-insiders) of at least $75 million. Public float is not comprehensively reported in standard databases, so we “scrape” public float data from firms’ 10-K filings for the universe of reporting entities for fiscal years 1993-2015. We use a “bunching” approach that compares the number of observations immediately below the $75 million threshold to a smooth counterfactual density. Prior to the introduction of the threshold (i.e. over 1993-2002), there is no detectable bunching. Following the introduction of the threshold (i.e. over 2003-2015), there is statistically significant evidence of bunching. However, the magnitude of bunching is relatively modest. Moreover, bunching is concentrated in the early years after the introduction of the threshold (2003-2009); bunching is virtually absent in later years (2010-2015). Our simple theoretical model of firms’ bunching behavior shows that the magnitude of bunching is not a sufficient statistic for the compliance costs of securities regulation. Nonetheless, the results of our bunching analysis cast some doubt on widespread claims that the regulatory burdens of these securities law provisions are large.

Keywords: Securities regulation; Sarbanes-Oxley; Public float; Compliance costs; Bunching analysis

JEL Classification: G38; K22

Suggested Citation

Dharmapala, Dhammika, Estimating Firms’ Responses to Securities Regulation Using a Bunching Approach (October 31, 2016). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper, Available at SSRN: https://ssrn.com/abstract=2817151 or http://dx.doi.org/10.2139/ssrn.2817151

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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