Journal of Financial Economics Vol. 153 2024
Regulatory costs of being public: Evidence from bunching estimation
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.
- DOI
- 10.1016/j.jfineco.2023.103775
- Volume
- 153
- Pages
- 103775
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib