Regulatory Fragmentation and Operational Efficiency

Abstract

This study employs a fragmentation index derived from Federal Register data to explore the relationship between regulatory fragmentation and operational efficiency. I find a positive association between regulatory fragmentation and operational efficiency, validated through various robustness checks, including entropy balancing, instrumental variable methods, fixed effects at different levels, change specification models, and alternative measures of operational efficiency. Additional analyses indicate that this positive association is more pronounced in firms exhibiting internal control weaknesses and facing higher operational uncertainty. Overall, my results suggest that although regulatory fragmentation poses challenges, it also creates opportunities for firms to enhance their operation efficiency. This research sheds light on the multifaceted effects of regulatory environments, providing valuable insights for policymakers and corporate strategists in managing regulatory complexities.