Regulatory fragmentation and corporate innovation

Abstract

Using a distinctive measure derived from the Federal Register, this study examines the relation between regulatory fragmentation and corporate innovation. While regulatory fragmentation is commonly perceived as a barrier due to increased compliance costs and operational complexities, I find a significant positive association between regulatory fragmentation and innovation outputs, a result that remains consistent across various robustness tests. This effect is particularly pronounced in older firms, those with considerable regulatory influence, large market shares, and firms operating in similar regulatory environments. The results challenge the predominantly negative perceptions surrounding regulatory fragmentation in policy discussions, highlighting its potential to significantly enhance a firm’s innovative capabilities.