SEC Regulations and Firms

73 Pages Posted: 7 Jul 2020

See all articles by Xi Wu

Xi Wu

University of California, Berkeley - Haas School of Business

Date Written: March 1, 2020


This study examines the effect of SEC regulations on firm valuations and corporate policies over the past 50 years. I build a time-varying and industry-specific measure of SEC regulatory restrictions, based on the universe of effective SEC rules and machine-learning relevance of the regulations to each industry. My identification strategy uses a generalized difference-in-differences design, exploiting the staggered nature of large changes in SEC regulatory restrictions across industries. I find that firms increase their demand for compliance employees following increases in regulatory restrictions, suggesting heightened regulatory burdens. At the same time, the affected firms experience increases in valuation and operating performance. The effects are asymmetric, where regulations have stronger impacts than deregulations. The results are consistent with increased regulatory burdens pushing out weaker companies, which increases the market power of other firms. Following increases in SEC restrictions, underperforming firms are more likely to exit the market, leading to more concentrated industries.

Keywords: Securities Regulation, SEC, Compliance, Valuation, Concentration, Machine Learning

JEL Classification: E22, G18, K22, L51, M48

Suggested Citation

Wu, Xi, SEC Regulations and Firms (March 1, 2020). Available at SSRN: or

Xi Wu (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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