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Regulation, entrepreneurship, and firm size

Author

Listed:
  • Dustin Chambers

    (Salisbury University
    Mercatus Center at George Mason University)

  • Patrick A. McLaughlin

    (Mercatus Center at George Mason University)

  • Tyler Richards

    (George Mason University)

Abstract

We empirically investigate the theory that regulatory growth within an industry disproportionately burdens small businesses relative to their larger competitors. Using RegData 3.0, we find that a 10% increase in industry-specific regulatory restrictions is associated with a 0.5% reduction in the number of firms regardless of firm size, but a 0.6% reduction in employment only among small firms. We also find that consecutive years of high regulatory growth amplify the associated negative effects of future regulations on the number and employment of small firms, but we find no amplifying effects for large firms. Finally, we find that higher regulatory growth rates are associated with lower job destruction rates among establishments owned by large firms. These findings are consistent with the Public Choice theory of regulation and imply that regulatory growth leads to fewer small businesses and reduced small business employment, with minimal negative impacts on large businesses.

Suggested Citation

  • Dustin Chambers & Patrick A. McLaughlin & Tyler Richards, 2022. "Regulation, entrepreneurship, and firm size," Journal of Regulatory Economics, Springer, vol. 61(2), pages 108-134, April.
    • Handle: RePEc:kap:regeco:v:61:y:2022:i:2:d:10.1007_s11149-022-09446-7
    DOI: 10.1007/s11149-022-09446-7
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dustin Chambers & Patrick A. McLaughlin & Oliver Sherouse, 2023. "Regulation, entrepreneurship, and dynamism," Empirical Economics, Springer, vol. 64(5), pages 2449-2466, May.
    2. Andrew Smith & Graham Brownlow, 2023. "Informal Institutions as Inhibitors of Rent-Seeking Entrepreneurship: Evidence From U.S. Legal History," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2323-2346, November.
    3. Bennett, Daniel L. & Wagner, Gary & Araki, Michael, 2024. "Labor market reform as an external enabler of high-growth entrepreneurship: A multi-level institutional contingency perspective," Journal of Business Venturing, Elsevier, vol. 39(6).

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    More about this item

    Keywords

    Entrepreneurship; Regulation; Regulatory accumulation; Small business; Firm size; Industry concentration;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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