Firms' Engagement of Regulatory Intermediaries in Responding to Government Policies

Drawing on the literature on intermediaries and business-government relations, this paper presents a dual pathway model of firms’ engagement of regulatory intermediaries to facilitate information exchange and the development... [ view full abstract ]

Drawing on the literature on intermediaries and business-government relations, this paper presents a dual pathway model of firms’ engagement of regulatory intermediaries to facilitate information exchange and the development of ties between regulatees and regulator. I explore how firms purposely choose regulatory intermediaries by focusing on: (1) the demand side of regulated firms (intermediary shopping), (2) the supply side of intermediaries due to structural changes in the sector, and (3) dynamics owning to organizational and regulatory changes. Using a unique dataset of nationwide power plants that joined a government-sponsored environmental program in China, I find that plants with novel technologies and those with less institutional linkage to government are positively associated with engaging government-affiliated intermediaries. In addition, the preference for less-connected plants is stronger in areas with stricter regulatory enforcement. Plants located in areas where the government is more hands-off on the intermediary sector are more likely to resort to non-government intermediaries. The results further suggest that both internal organizational learning and external regulatory punctuations also tilt the balance in firms’ dynamic favoring of intermediaries.
This research contributes to a better understanding of institutional intermediaries and business- government relations. It is one of few studies to explore how firms choose intermediaries in regulatory compliance. First, it adds to the intermediary literature in two aspects. On the one hand, this study goes beyond the information-centered role by theorizing and empirically exploring how intermediaries facilitate the development of regulatory ties. On the other, it highlights the diversity within the intermediary sector and offers a balanced and dynamic view on the benefit and cost of engaging different types of intermediaries. Second, findings from the firm-intermediary-regulator model extend the conventional firm-regulator dyad and shed light on how partnership and flexibility can be achieved in firm compliance by engaging third parties. Third, in spite of increasing research on direct ways to develop political connections or to influence public policymaking, understanding of indirect connections as facilitated by intermediaries is rather limited. By investigating how firms manage their linkage to the regulator via intermediaries, this study thus contributes to the non-market strategy literature.