Francesco Trebbi, University of California-Berkeley
Miao Zhang, University of Southern California
Michael Simkovic,
Abstract: One of the key questions in the study of regulation is whether the costs of regulatory compliance fall homogeneously on all businesses or whether certain firms, for instance small ones, are especially penalized. 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.
Abstract: This paper studies how banking regulators should disclose the regulatory models they use to assess banks that have reporting discretion. In my setting, such assessments depend on both economic conditions and the fundamentals of banks' assets. The regulatory models provide signals about economic conditions, while banks report information about their asset fundamentals. On the one hand, disclosing the models helps banks understand how their assets perform in different economic environments. On the other hand, it induces banks with socially undesirable assets to manipulate reports in order to obtain favorable assessments. While regulators can partially deter manipulation by designing the assessment rule optimally, the disclosure decision of the regulatory models remains necessary. The optimal disclosure policy is to disclose the regulatory models when the assessment rule is more likely to induce manipulation and keep them secret otherwise. In this way, disclosure complements the assessment rule by reducing manipulation when it harms the regulators more. These analyses speak directly to supervisory stress tests and climate risk stress tests.
Discussant: Linda Schilling, Washington University-St. Louis
Abstract: We study how stakeholder orientation impacts firm management and performance. We exploit state-level law changes governing the conversion of hospitals from nonprofit to for-profit and find that for-profit orientation reduces hospital spending on emergency rooms, Medicaid patients, and social workers, while increasing focus on revenue. Consistentwith spillovers, nonprofit hospitals located near converting hospitals experience increased emergency room visits and expenditures. Finally, we investigate governance channels that align corporate behavior with stakeholders and find that converted for-profit hospitals adjust boards by replacing MDs with MBAs, and that the tax code is a major source of governance for nonprofit hospitals.
