Regulatory Peers

Using novel data, we develop a similarity score which compares the regulatory exposure of each two companies, for example if they lobby against similar rules. Regulatory similarity transcends industrial, geographic, and product market boundaries, but responds to exogenous regulatory shocks. Consistent with rational learning and efficient contract theories, regulatory similarity explains the co-movement of key corporate outcomes and the relative performance evaluation of corporate executives. Converting the pairwise similarities into a regulatory network, we find that network centrality increases complexity and reduces the quantity and quality of firm-specific information. Combined, our results highlight important economic implications of shared regulatory exposure.