Regulatory Intensity and Firm-Specific Exposure

Using a hand-collected administrative dataset, I develop a regulatory intensity index that tracks the total costs of compliance with federal paperwork regulations. I estimate firm-specific regulatory exposure based on the correlation between stock returns and unanticipated index changes. Regulatory exposure is associated with material declines in investment and employment, indicative of response to adverse shocks. The effect is driven by firms with ex-ante financial constraints and irreversible investment opportunities. The results shed new light on the heterogeneous economic impact of regulation and on its propagation mechanisms