Regulations as Automatic Stabilizers During Crises

Even in the best of times, corporate leaders gripe about the cost of government regulations. An average hedge fund spends more than 7 percent of its total operating costs on various forms of compliance.[1] For the banking industry, compliance  expenses are estimated at $270 billion –10 percent of operating costs.[2]  In my paper, “Regulations as Automatic Stabilizers,” I show that regulations have a critical economic benefit: More heavily regulated companies fare significantly better during extreme economic downturns. In other words, regulations are automatic stabilizers during economic downturns. What is more, regulations do not negatively affect firm performance during … Read more