Too Small to Regulate: International Evidence on Regulatory Monitoring Public Deposited

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  • March 20, 2019
  • Stice-Lawrence, Lorien
    • Affiliation: Kenan-Flagler Business School
  • I examine a phenomenon called Too Small to Regulate (TSTR) by which industries composed predominantly of small firms are more likely to violate regulatory requirements because their industry composition makes them especially difficult to effectively monitor. I identify TSTR industries throughout the world and find evidence consistent with firms in these industries receiving less regulatory monitoring using measures derived from firms’ financial disclosures and downloads of EDGAR filings by SEC and IRS employees. Consistent with inadequate oversight, firms in TSTR industries are penalized by the market with lower liquidity and are more likely to engage in non-compliant activities such as tax avoidance. The consequences of TSTR appear to be less severe when firms are monitored by third parties such as financial analysts, institutional investors, the news media, or Big N auditors. The TSTR effect varies predictably with exogenous changes in regulatory monitoring, enforcement, and resource constraints and is amplified in industries where regulation plays a greater role.
Date of publication
Resource type
Rights statement
  • In Copyright
  • Bushman, Robert
  • Hoopes, Jeffrey
  • Labro, Eva
  • Landsman, Wayne
  • Lang, Mark
  • Doctor of Philosophy
Degree granting institution
  • University of North Carolina at Chapel Hill Graduate School
Graduation year
  • 2017

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