Regulation and Technology-Driven Entry: Measurement and Micro-Evidence

69 Pages Posted: 30 Jun 2018 Last revised: 14 Sep 2020

See all articles by Michael Simkovic

Michael Simkovic

University of Southern California Gould School of Law; University of Southern California - Marshall School of Business

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: August 12, 2020

Abstract

We use industry spending on "regulation-related tasks" to measure each industry's regulation intensity. Applying this measure to manufacturing industries, we find that increased regulation intensity is associated with higher production cost and lower growth at incumbents, but increased entry. We develop a model in which entrants face lower costs than incumbents in adopting new production technologies. Regulation raises the operating cost of current technology more than new technologies and thereby encourages entry. Using establishment-level data, we find supporting evidence that when industry regulation is more intense, entrants use more advanced technologies, spend less on regulation, and survive longer, as compared to incumbents.

Keywords: Regulation, Entry, Technology Adoption, Regulation-Related Tasks, Sarbanes-Oxley, Dodd-Frank

JEL Classification: D22, G28, G38, K2, L5, L26

Suggested Citation

Simkovic, Michael and Zhang, Miao Ben, Regulation and Technology-Driven Entry: Measurement and Micro-Evidence (August 12, 2020). Available at SSRN: https://ssrn.com/abstract=3205589 or http://dx.doi.org/10.2139/ssrn.3205589

Michael Simkovic (Contact Author)

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www.MiaoBenZhang.com/

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