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Regulatory Intensity and Firm-Specific Exposure

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  • Joseph Kalmenovitz
  • Ralph Koijen

Abstract

Building on administrative data and machine-learning models, I develop a firm-specific measure of regulatory intensity: cost of compliance with all federal paperwork regulations. Regulatory intensity increases the cost of goods sold and overhead spending (SGA). It also incentivizes companies to reduce capital investment, hire fewer employees, and lobby more. The effects are particularly strong among financially constrained firms and those with irreversible investment opportunities, suggesting that regulation affects companies through budgetary pressures and heightened uncertainty. The findings highlight the real effects of regulation and the underlying mechanisms.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Joseph Kalmenovitz & Ralph Koijen, 2023. "Regulatory Intensity and Firm-Specific Exposure," The Review of Financial Studies, Society for Financial Studies, vol. 36(8), pages 3311-3347.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:8:p:3311-3347.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad001
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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