The Impact of Regulation on Firms

Coauthors: Robin Gong

Paper
This paper introduces a new measure of firm-level regulation. Contrary to the conventional wisdom, we find that more regulation increases labor and capital inputs. Productivity decreases, which is consistent with a model of regulation inducing non-productive investment. We employ two empirical strategies to identify the causal impact of regulation on firms, first, utilizing structural breaks and industry level regulation changes, and second, computing predicted industry level regulation measures as instruments. We conduct an event study using the surprise 2016 US election results. Firms with higher Dodd-Frank exposure exhibited higher returns following an increase in the probability of repeal.