Jurisdictional Capital and AI Regulation: Evidence from the EU AI Act

IMF Working Papers, August 28, 2026

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Study of how AI regulation affects firm valuation using the EU Artificial Intelligence Act, described as "the world's first comprehensive AI framework."
Event study centered on the April 2021 proposal to the EU AI Act.
Authors: Yi Chen, Zhe Wang, Jing Zhou.
Date: August 28, 2026.

Firms combining deeper EU presence with faster AI hiring earned higher announcement returns, indicating markets value "jurisdictional capital"—experience in the EU regulatory environment helps firms navigate the AI regulation.
The effect is stronger for:
- high-risk AI,
- firms with stable and concentrated EU presence,
- firms with prior compliance experience.
The results are not explained by size, foreign exposure, or lobbying.
EU-embedded, AI-expanding firms increase within-firm EU revenue share when peers are less embedded.

Method: Event study around the April 2021 proposal to the EU AI Act.
Focus: Firm valuation responses to AI regulatory announcement; interactions between EU presence and AI hiring speed.
Subject areas listed: Artificial intelligence (economics), Capital adequacy requirements, Compliance costs, Financial regulation and supervision, Foreign currency exposure, Money, Revenue administration, Technology.

Stronger valuation effects documented for high-risk AI applications.
Stability and concentration of EU presence amplify the valuation premium.
Prior compliance experience further increases the effect.
Alternative explanations tested and found insufficient: size, foreign exposure, and lobbying do not account for the observed effects.

Markets price "jurisdictional capital": firms with EU regulatory experience are better positioned to manage regulatory changes embodied in the EU AI Act.
Firms expanding AI activities and embedded in the EU reallocate revenue toward the EU when peer firms are less EU-embedded, suggesting strategic geographic revenue shifts in response to regulatory landscapes.