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  5. Real Effects of Information and Regulatory Frictions
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Real Effects of Information and Regulatory Frictions

Paper Session

Saturday, Jan. 4, 2025 2:30 PM - 4:30 PM (PST)

San Francisco Marriott Marquis, Yerba Buena Salon 1 & 2
Hosted By: American Finance Association
  • Geoffrey Tate, University of Maryland

The Cost of Regulatory Compliance in the United States

Francesco Trebbi
,
University of California-Berkeley
Miao Zhang
,
University of Southern California
Michael Simkovic
,
University of Southern California

Abstract

Does the cost of regulatory compliance fall homogeneously on small and large firms? We quantify firms' compliance costs in terms of their labor spending to adhere to government rules. Using comprehensive establishment-level occupational microdata and occupation-specific task information, we recover the proportion of a firm's wage bill attributable to employees engaged in regulatory compliance. On average for 2002-14, regulatory costs account for 1.34% to 3.33% of a firm's wage bill, totaling up in 2014 to $239 billion, and to $289 billion when adding capital equipment costs. Our findings reveal an inverted-U relation between firms' regulatory compliance costs and their scale of employment, indicating that firms with approximately 500 employees face compliance costs that are about 40 percent higher as a share of total wages compared to small or large firms. Finally, we develop an instrumental variable methodology to disentangle the influence of regulatory requirements and enforcement in driving firms' compliance costs.

Financial News Production

Allen Hu
,
Yale University

Abstract

I establish that financial news production can be strongly influenced by factors unrelated to the arrival of, and demand for, information. Fluctuations in real economic
activity, such as advertising, generate cash-flow shocks to the media sector, which reacts by changing news quantity and quality. Such endogenous dynamics in news production then shift the levels of uncertainty and information asymmetry about firms, affecting real and financial outcomes. Implementing a within-firm estimator on a comprehensive data set of media advertising revenue, news, and job postings, I compare news production about the same firm by different news media whose advertising revenues are differentially exposed to industry-level advertisement shocks. Financial news production is procyclical at the aggregate level and serves as a channel for economic shock transmission and amplification.

Government Arrears and Corporate Decisions: Lessons from a Natural Experiment

Vicente Cunat
,
London School of Economics and Political Science
Rafael Zambrana
,
University of Notre Dame
Vicente Bermejo
,
ESADE Business School
Jose Maria Abad
,
World Bank

Abstract

We study how late payment in public procurement affects corporate decisions by leveraging a public program that unexpectedly repaid local government arrears. Our identification strategy compares firms included in the program with similar firms that were accidentally excluded. Early repayment of arrears leads to heterogeneous corporate responses. Financially constrained firms adjust their real operations, increasing investment and repaying suppliers. In contrast, financially unconstrained firms reshape their financial structure by repaying debt. Both types of firms build up cash reserves as a buffer against future cash flow uncertainty. Lastly, the accumulation of arrears deteriorates procurement relationships, which barely recover after repayment.

Big Data and Bigger Firms: A Labor Market Channel

Abhinav Gupta
,
University of North Carolina-Chapel Hill
Naman Nishesh
,
University of North Carolina-Chapel Hill
Elena Simintzi
,
University of North Carolina-Chapel Hill

Abstract

This paper investigates the impact of individual-level output data on labor redistribution towards large firms by analyzing the disclosure of employee output information through GitHub, the world's largest software management platform. GitHub tracks and publicly displays real-time individual contributions. In 2016, a policy change enabled GitHub users to display their total contributions more accurately on their profiles. Following this update, employees with 1 standard deviation higher GitHub contributions witnessed a 5% increase in job transitions to large firms, predominantly at the expense of smaller companies. While productive individuals left small firms for senior roles in larger companies, the latter retained them through internal promotions. The departure of productive workers led to an overall reduction in employment growth and productivity for small firms with more productive employees before the shock. Our findings highlight labor-related big data's role in amplifying large firms' dominance in recent years.

Discussant(s)
Ting Xu
,
University of Toronto
Diego Garcia
,
University of Colorado-Boulder
Mariassunta Giannetti
,
Stockholm School of Economics
Francesco D'Acunto
,
Georgetown University
JEL Classifications
  • G3 - Corporate Finance and Governance