Regulatory costs on entrepreneurship and establishment employment size

Regulatory costs on entrepreneurship and establishment employment size In this article, we examine how the level of regulation affects the size distribution of businesses. To the extent that regulation functions as a fixed cost, it should lead to larger firm size. However, regulations may also lead to smaller establishments with firms outsourcing regulated activities or staying small to take advantage of state exemptions for small businesses from regulations. We empirically examine the relationship between the size distribution of establishments and the level of regulation using state- and industry-level panel data from 1992 to 2004. Our results suggest that regulation decreases the proportion of zero employee and 1–4 employee establishments. The proportion of establishments in the 5–9 employee range generally increases with the level of regulation. Thus, regulation appears to operate as a fixed cost causing establishments to be larger. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Regulatory costs on entrepreneurship and establishment employment size

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Publisher
Springer Journals
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Management/Business for Professionals; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-013-9493-9
Publisher site
See Article on Publisher Site

Abstract

In this article, we examine how the level of regulation affects the size distribution of businesses. To the extent that regulation functions as a fixed cost, it should lead to larger firm size. However, regulations may also lead to smaller establishments with firms outsourcing regulated activities or staying small to take advantage of state exemptions for small businesses from regulations. We empirically examine the relationship between the size distribution of establishments and the level of regulation using state- and industry-level panel data from 1992 to 2004. Our results suggest that regulation decreases the proportion of zero employee and 1–4 employee establishments. The proportion of establishments in the 5–9 employee range generally increases with the level of regulation. Thus, regulation appears to operate as a fixed cost causing establishments to be larger.

Journal

Small Business EconomicsSpringer Journals

Published: Jun 19, 2013

References

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