Nonmarket Responses to Regulation: A Signaling Theory Approach

We examine how regulatory intensity and increases in regulation affect the nonmarket activities of firms. Using a signaling theory perspective, we seek to better understand how firms respond to regulation in terms of corporate social responsibility (CSR) and corporate political activity (CPA), the t...

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Bibliographic Details
Published inGroup & organization management Vol. 45; no. 6; pp. 865 - 891
Main Authors Brown, Lee Warren, Goll, Irene, Rasheed, Abdul A., Crawford, Wayne S.
Format Journal Article
LanguageEnglish
Published Los Angeles, CA SAGE Publications 01.12.2020
SAGE PUBLICATIONS, INC
Subjects
Companies
Political participation
Regulation
Signaling
Social responsibility
Textual analysis
corporate social responsibility
regulatory intensity
corporate political activity
signaling theory
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Summary:We examine how regulatory intensity and increases in regulation affect the nonmarket activities of firms. Using a signaling theory perspective, we seek to better understand how firms respond to regulation in terms of corporate social responsibility (CSR) and corporate political activity (CPA), the two main pillars of nonmarket activity. Examination of both CSR and CPA in concert rather than in isolation provides insights into whether they are complements or substitutes. We use textual analysis of the US Code of Federal Regulations to measure regulatory intensity and increases in regulation. Based on a sample of 331 S&P 500 firms for the period 1998–2014, our findings suggest that regulatory intensity leads to more nonmarket responses from firms. We also find support for nonlinear relationships between CSR and CPA.
ISSN:1059-6011
1552-3993
DOI:10.1177/1059601120963693