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The Impact of Regulation on Firm Value: Evidence from Political Connections

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  • Alan Crane
  • Andrew Koch

Abstract

We examine the relationship between regulatory intensity and firm value. We find that firms facing high regulatory intensity exhibit lower valuations. However, it is the reverse for politically connected firms. Firms with political ties and high regulatory exposure have higher valuation ratios, and their market values increase following new regulations. Additionally, these firms have higher markups and face lower entrance rates by new establishments, consistent with weakened competition. Nonetheless, not all results are robust to the choice of specification. Overall, our findings provide some support for a regulatory capture perspective, suggesting that regulation may enhance value for politically connected firms.

Suggested Citation

  • Alan Crane & Andrew Koch, 2025. "The Impact of Regulation on Firm Value: Evidence from Political Connections," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 14(4), pages 1058-1082.
    • Handle: RePEc:oup:rcorpf:v:14:y:2025:i:4:p:1058-1082.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfaf014
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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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