Regulatory Costs of Being Public: Evidence from Bunching Estimation

74 Pages Posted: 11 Feb 2021 Last revised: 1 Apr 2021

See all articles by Michael Ewens

Michael Ewens

California Institute of Technology - Division of the Humanities and Social Sciences; National Bureau of Economic Research (NBER)

Kairong Xiao

Columbia University - Columbia Business School

Ting Xu

University of Virginia - Darden School of Business

Date Written: March 20, 2021

Abstract

Many disclosure and internal governance regulations for U.S. public firms trigger when a firm's public float exceeds a threshold. Consistent with firms seeking to avoid costly regulation, we document significant bunching around multiple regulatory thresholds introduced from 1992 to 2012. We present a revealed preference estimation strategy that uses this behavior to quantify regulatory costs. Our estimates show that various disclosure and internal governance rules leads to a total compliance cost of 4.3% of the market capitalization for a median U.S. public firm. We apply the estimated costs to firms' public-private choice and show that regulatory costs significantly impact private firms' decisions to go public, while have limited effects on public firms' decisions to go private.

Keywords: costs of being public, bunching estimator, capital market regulation, disclosure, governance

JEL Classification: G21, G28

Suggested Citation

Ewens, Michael and Xiao, Kairong and Xu, Ting, Regulatory Costs of Being Public: Evidence from Bunching Estimation (March 20, 2021). Available at SSRN: https://ssrn.com/abstract=3740722 or http://dx.doi.org/10.2139/ssrn.3740722

Michael Ewens

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kairong Xiao

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Ting Xu (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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