We derive a measure of firm-level regulatory costs from the text of corporate earnings calls. We use this measure to study the effect of regulation on companies’ operating fundamentals, growth, leverage, and equity returns. Higher regulatory costs result in slower sales growth and lower leverage; both effects are mitigated for larger firms. A one-standard deviation increase in regulatory cost, measured from the Q&A section of earnings calls, is associated with an increase in firms’ annual equity returns of close to 3%. These findings suggest that regulatory risk is a major cost to firms, but large firms manage that risk better.
Calomiris, Charles, Harry Mamaysky, and Ruoke Yang. "Measuring the Cost of Regulation: A Text-Based Approach." Columbia Business School, March 8, 2020.
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