Many regulations are based on size thresholds. We develop a model that shows that such regulations distort risk-taking incentives, providing above-threshold firms with greater incentives to take risk and below-threshold firms the opposite. Risk distortion varies nonlinearly as a function of the...

The Dodd-Frank Act created differential regulatory requirements for banks above specified asset size thresholds. Event study results imply greater expected net regulatory costs for above-threshold banks. Consistent with hypotheses that near-below-threshold banks alter their behavior to attempt...

Many regulations that affect firms and banks in the economy are based on size thresholds. We develop a model that shows that such regulations distort risk-taking incentives, providing above-threshold firms with greater incentives to take risk and below-threshold firms the opposite. Risk...