Regulatory Costs of Being Public: Evidence from Bunching Estimation

78 Pages Posted: 16 Aug 2021 Last revised: 19 Aug 2022

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 Virginia - Darden School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 2021

Abstract

The increased burden of disclosure and governance regulations is often cited as a key reason for the significant decline in the number of publicly-listed companies in the U.S. We explore the connection between regulatory costs and the number of listed firms 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 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 lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm. Regulatory costs have a greater impact on private firms’ IPO decisions than on public firms’ going private decisions. However, heightened regulatory costs only explain a small fraction of the decline in the number of public firms.

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Suggested Citation

Ewens, Michael and Xiao, Kairong and Xu, Ting, Regulatory Costs of Being Public: Evidence from Bunching Estimation (August 2021). NBER Working Paper No. w29143, Available at SSRN: https://ssrn.com/abstract=3905708

Michael Ewens (Contact Author)

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Kairong Xiao

Columbia University - Columbia Business School ( email )

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Ting Xu

University of Virginia - Darden School of Business ( email )

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Charlottesville, VA 22906-6550
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