Measuring the Cost of Regulation: A Text-Based Approach

66 Pages Posted: 13 Apr 2020 Last revised: 22 May 2023

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Harry Mamaysky

Columbia University - Columbia Business School

Ruoke Yang

Columbia University - Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: May 21, 2023

Abstract

We derive a measure of firm-level regulatory exposure from corporate earnings calls text and study its effects on growth, leverage, profitability, and equity returns. Higher regulatory exposure results in slower sales and asset growth, lower leverage, reduced profitability, but higher post-call equity returns, effects which are mitigated for larger firms. Our findings suggest that both risk and operating costs rise with increased regulation, but the risk impact is larger. Topical context of regulation is important for understanding the magnitude of outcomes. We validate our measure by showing its explanatory power for cross-sectional stock returns during the 2016 Presidential election.

Keywords: Regulation; Cost of Capital; Corporate Finance; Text Processing; NLP

JEL Classification: K23, G12, G38

Suggested Citation

Calomiris, Charles W. and Mamaysky, Harry and Yang, Ruoke, Measuring the Cost of Regulation: A Text-Based Approach (May 21, 2023). Available at SSRN: https://ssrn.com/abstract=3550922 or http://dx.doi.org/10.2139/ssrn.3550922

Charles W. Calomiris

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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Harry Mamaysky (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Ruoke Yang

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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