Responding to Regulatory Uncertainty: Government Agency Signalling and Greenhouse Gas Emissions

Eunhee Kim (Fordham University)
Shon Hiatt (University of Southern California)
Yue Maggie Zhou (University of Michigan)

Abstract: Anticipating and mitigating the impact of regulatory changes are important tasks for firms; yet, this can be challenging when firms face constantly evolving and ambiguous policies such as those regarding climate change and when regulatory implementation is uncertain. We approach this issue by bringing government agencies center stage and exploring the factors that lead agencies to signal their policy implementation intentions as well as firm reactions to such signals in the context of electric power generation in the European Union from 2004 to 2009. We propose that agencies’ concern over resources motivates them to signal implementation intentions to political principals who support the policy goals in an effort to reduce uncertainty surrounding future budgets. We argue that firms will respond to these signals by altering strategy and reducing carbon emissions. We further show that the effect of resource dependency on agency signalling is moderated by pressures from local agency stakeholders and by the agency’s capacity to implement the policy.

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