Regulatory Costs of Being Public: Evidence from Bunching Estimation

Abstract

We quantify the regulatory costs of being public by exploiting a regulatory quirk: many rules 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. A bunching estimation shows that various disclosure and internal governance rules lead to a total compliance cost of 4.1% of the median firm's market capitalization. Regulatory costs have a greater impact on private firms' IPO decisions than on public firms' going private decisions, but such costs only explain a small part of the decline in the number of public firms.

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

JEL Classification: G21, G28