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Regulatory costs of being public: Evidence from bunching estimation

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  • Ewens, Michael
  • Xiao, Kairong
  • Xu, Ting

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.

Suggested Citation

  • Ewens, Michael & Xiao, Kairong & Xu, Ting, 2024. "Regulatory costs of being public: Evidence from bunching estimation," Journal of Financial Economics, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:jfinec:v:153:y:2024:i:c:s0304405x23002155
    DOI: 10.1016/j.jfineco.2023.103775
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    Citations

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    Cited by:

    1. Andres Almazan & Nathan Swem & Sheridan Titman & Gregory Weitzner, 2025. "Access to Capital and the IPO Decision: An Analysis of US Private Firms," Finance and Economics Discussion Series 2025-102, Board of Governors of the Federal Reserve System (U.S.).
    2. Lv, Xiaofeng & Yang, Yifan & Lu, Yue & Hong, Liming, 2025. "Deviation signs-based bunching methods," Economic Modelling, Elsevier, vol. 143(C).
    3. Tianquan Jin & Xiaoming Wei & Qi He & Zhenkun Zhang, 2025. "The Unintended Effect of the Regularized Government Accounting Supervision on Corporate Innovation," Australian Accounting Review, CPA Australia, vol. 35(4), pages 342-356, December.
    4. Osorio, Chad Patrick & Gojo Cruz, Jamlech Iram, 2025. "Promoting free flows via competition law: An AI industry blueprint for Southeast Asia," Telecommunications Policy, Elsevier, vol. 49(5).
    5. Masayuki MORIKAWA, 2025. "Compliance Costs of Government Rules and Regulations," Policy Discussion Papers 25016, Research Institute of Economy, Trade and Industry (RIETI).
    6. IMANI, Yusuke & MINAMI, Koutaroh, 2025. "Wall of Main Bank : Bank Megamerger and Lending Adjustment," Working Paper Series G-1-29, Hitotsubashi University Center for Financial Research.
    7. Azizjon Alimov, 2026. "Regulatory thresholds and post-IPO acquisitions: evidence from the JOBS Act," Small Business Economics, Springer, vol. 66(3), pages 1441-1469, March.
    8. Liang, Lantian & Zhang, Harold H. & Zhao, Feng & Zhao, Xiaofei, 2025. "Disclosure mandate, trust, and asset securitization," Journal of Financial Intermediation, Elsevier, vol. 63(C).
    9. Duong, Huu Nhan & Goyal, Abhinav & Zolotoy, Leon, 2024. "Anti-collusion leniency legislations and IPO activity: Worldwide evidence," Journal of Corporate Finance, Elsevier, vol. 89(C).
    10. Myunghyun Song, 2024. "Identification and Inference in General Bunching Designs," Papers 2411.03625, arXiv.org, revised Feb 2025.

    More about this item

    Keywords

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    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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