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This paper provides evidence about the unintended consequences arising when small companies are exempted from costly regulations—these firms have incentives to stay small. Between 2003 and 2008, the SEC postponed compliance with Section 404 of the Sarbanes‐Oxley Act of 2002 (SOX) for “non‐accelerated filers” (firms with public float less than $75 million). We hypothesize and find that some of these firms had an incentive to remain below this bright line threshold. Moreover, we document that these firms remained small by undertaking less investment, making more cash payouts to shareholders, reducing the number of shares held by non‐affiliates, making more bad news disclosures, and reporting lower earnings than control firms. Finally, there is no evidence that firms remaining small are doing so to maintain insiders' private control benefits. These findings have implications beyond SOX because numerous federal and state regulations exempt small firms via bright line size thresholds.

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This paper documents how firms exercise discretion in defining affiliates and reporting public float in response to Securities and Exchange Commission regulations. I find that firms with higher expected compliance costs under section 404 of the Sarbanes-Oxley Act of 2002 tend to classify more shares as affiliated and report lower public float. In contrast, firms issuing seasoned equity are less likely to underreport public float, possibly due to favorable regulatory treatment for large issuers. These incentives are weakened when future regulatory changes render float less important.Se conformer ou non : comprendre la latitude dont jouissent les soci et es dans la pr esentation de l'information relative au flottant dans le cadre des r eglements de la SEC R ESUM E L'auteure d ecrit comment les soci et es exercent leur pouvoir discr etionnaire dans la d efinition d'affili es et la pr esentation de l'information relative au flottant, dans le cadre de la r eglementation de la Securities and Exchange Commission. Elle constate que les soci et es dont les coûts d'observation pr evus sont plus elev es sous le r egime de l'article 404 de la Loi Sarbanes-Oxley de 2002 ont tendance a classer davantage d'actions comme etant celles d'affili es et a faire etat d'un flottant moins elev e. Par contre, les soci et es qui emettent des titres acclimat es sont moins susceptibles de pr esenter un flottant sous-evalu e, peut-être en raison du traitement r eglementaire favorable dont b en eficient les emetteurs importants. Le pouvoir de ces incitatifs s'att enue lorsque les modifications ult erieurement apport ees a la r eglementation diminuent l'importance du flottant.

Using the Financial Statement Balancing Model (FSBM) from Compustat, we examine whether financial statement data articulate for 10,681 U.S. nonfinancial firms for 24 years, a total of 92,951 firm-years. We accomplish three research goals. First, we build the first formal model of financial statement articulation, providing a benchmark for subsequent discussions of articulation. Second, we show how to handle missing data to ensure articulation, by either filling in zeros or inferring the missing data using other variables in the equations. Third, we produce modified variables that resolve exceptions in the articulating equations, so that these variables form relations that are consistent across time and firms. We then compare the “modified database” (MDB) using these updated variables with the original Compustat data, and find significant differences in many commonly used financial variables, such as Altman's Z-score. We believe that our MDB has the potential to help researchers increase sample size and data quality in empirical studies.