Browsing by Author "Ince, B."

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    ArticlePublicationOpen Access
    Price of regulations: Regulatory costs and the cross-section of stock returns
    (Oxford University Press, 2024-01) Ince, B.; Özsöylev, Han Nazmi; International Finance; ÖZSÖYLEV, Han Nazmi
    Regulations introduce significant fixed costs and add to operating leverage. Fixed regulatory costs that contribute to operating leverage should generate a risk premium. To explore whether such a premium exists, we introduce a measure of "regulatory operating leverage" that reflects the importance of fixed regulatory costs in a firm's cost structure. Regulatory operating leverage predicts stock returns in the cross-section, and a zero-cost high-low regulatory operating leverage strategy generates positive and significant risk-adjusted return. Finally, the impact of regulatory operating leverage on returns is due to the (systematic) risk contribution of fixed regulatory costs.