Regulatory ties and corporate compliance strategies

Abstract

By integrating the environmental regulation literature and managerial ties theory, this research explores how regulatory ties and firm visibility shape formalism and self-determination, two distinct corporate coping strategies for complying with environmental regulatory demands. Based on survey data collected in China, our empirical results show a U-shaped relationship between firms’ regulatory ties and their strict adherence to formal rules (formalism), and an inverted U-shaped relationship between regulatory ties and firm discrepancy in complying with regulations (self-determination). Further, the inverted U-shaped relationship is stronger among firms with less organizational and environmental visibility. Additional analysis further indicates that these relationships are particularly evident in privately owned enterprises. Our study may contribute to the public performance literature by furthering our understanding of regulatory ties as a double-edged sword in corporate compliance.