Regulatory Costs of Being Public: Evidence from Bunching Estimation

93 Pages Posted: 11 Feb 2021 Last revised: 22 Dec 2023

See all articles by Michael Ewens

Michael Ewens

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

Kairong Xiao

Columbia University - Columbia Business School

Ting Xu

University of Toronto, Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2023

Abstract

We quantify the costs of major disclosure and governance regulations by exploiting a regulatory quirk: many rules trigger when a firm's public float exceeds a threshold. Consistent with firms avoiding costly regulation, we document significant bunching around three major regulatory thresholds. Estimations reveal that the three examined rules' compliance costs range from 1.2% to 1.8% of market capitalization for firms near thresholds. For a median U.S. public company, total costs amount to 4.3% of market capitalization, and at least 2.3% absent regulatory avoidance frictions. These cost estimates are robust across various extrapolation assumptions, ranging from 2.1% to 6.3% of 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

Suggested Citation

Ewens, Michael and Xiao, Kairong and Xu, Ting, Regulatory Costs of Being Public: Evidence from Bunching Estimation (December 19, 2023). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3740722 or http://dx.doi.org/10.2139/ssrn.3740722

Michael Ewens

Columbia Business School ( email )

665 W. 130th Street
732 Kravis Hall
New York, NY 10027
United States

HOME PAGE: http://michaelewens.com

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 Toronto, Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://https://sites.google.com/site/tingxu4

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,122
Abstract Views
3,629
Rank
35,574
PlumX Metrics