This website provide the background and data for the NSF funded “The Impact of Securities Regulation on Financial Development and Entrepreneurship” (1949582). The project aims to document the history of state securities laws from 1948 to 1980 (some gaps), characterize the stringency of those laws over time, and then connect the laws’ characteristics to economic outcomes.

The original proposal’s abstract is:

A large body of research documents strong connection between economic growth and financial development. This research project will study the impact of individual state financial laws on local financial development, economic growth and entrepreneurial activity. The overarching goal is to understand if and how regulations that govern raising of capital by small firms impacts those firms’ outcomes. The project will produce a database describing and quantifying the levels of regulation for equity capital raising by U.S. businesses. Empirical analysis of the data will guide policies that seek to support entrepreneurial activity.

Compared to large, established firms, entrepreneurial firms faces more costly external finance because of the informational imperfections inherent in their innovative, high-growth objectives (e.g. incentive issues or adverse selection). Traditional bank or credit financing is therefore often unavailable and they instead must raise equity or non-traditional financing that provide incentive and monitoring solutions. Thus, equity market regulations (i.e., securities laws) will impact the entrepreneurial firm financial constraints. From the early 20th century to the mid-1990s, individual U.S. states were the main regulators of these markets. This project aims to document and categorize these laws, study their origination and finally, investigate their consequences for the capital markets and economic outcomes.

The project was lead by Michael Ewens (Columbia Business School, previously Caltech). The project would not have been possible with the generosity of Wolters Kluwer and Jay Fishman, who kindly provided the original paper documents of the “Blue Sky Law Reporters” that form the backbone of the data. These reports — example screenshots below — were critical to the entire project.

Screenshot of the Blue Sky Law Reports (and Reporter)

Kexin Feng (Caltech) provided invaluable research assistance on this project in all dimensions.

The main challenge with any data project that aims to translate laws/statutes into quantities is interpretation: legal text, judicial opinions, or regulator notes are difficult to read and interpret. The Blue Sky Law Reports represent an (accidental) solution described in the data section of the page. To summarize, these Reports provide short human-written summaries of legal or regulatory changes written by lawyers, for lawyers, academics, and business owners. We thus overcome many of the challenges of quantifiying the law. Moreover, these Reports are only available for a given state and time period when there is a change. This feature helps us avoid the problem of determining if and when a law or regulatory change occurs.

Project goals

We had three goals with this project:

  1. Distribute the Blue Sky Law Reports data in text form (see data here)
  2. Translate the Reports data into an index that can be used in economic, legal, historical and financial research. (see data here)
  3. Document whether the changes in blue sky laws can help us understand historical differences in the United States’ entrepreneurial and other economic activity.

More resources