The various disclosure & internal governance rules lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm; these regulatory costs only explain a small fraction of the decline in number of public firms

Regulatory Costs of Being Public: Evidence from Bunching Estimation. Michael Ewens, Kairong Xiao & Ting Xu. NBER Working Paper 29143, August 2021. DOI 10.3386/w29143

Abstract: The increased burden of disclosure and governance regulations is often cited as a key reason for the significant decline in the number of publicly-listed companies in the U.S. We explore the connection between regulatory costs and the number of listed firms by exploiting a regulatory quirk: many rules trigger when a firm’s public float exceeds a threshold. Consistent with firms seeking to avoid costly regulation, we document significant bunching around multiple regulatory thresholds introduced from 1992 to 2012. We present a revealed preference estimation strategy that uses this behavior to quantify regulatory costs. Our estimates show that various disclosure and internal governance rules lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm. Regulatory costs have a greater impact on private firms’ IPO decisions than on public firms’ going private decisions. However, heightened regulatory costs only explain a small fraction of the decline in the number of public firms.