It is well documented that firms respond to regulations in their home jurisdictions. We present hypotheses that firms also respond to regulations in jurisdictions where they do not operate. We examine renewable-power provision in the U.S. Electric utility sector between 2001 and 2006, and find that firms adopt more renewable-power generation when their peers (i.e., firms in the same regulatory jurisdiction) face greater renewable-power standards in other jurisdictions. The underlying mechanism is that forward-looking firms assess when extrajurisdictional regulations foreshadow regulatory changes where they operate. Our analyses support this mechanism versus plausible alternatives. We demonstrate firms acting strategically to respond to extrajurisdictional regulations and show that the central conduit motivating this response is the extrajurisdictional footprint of firms operating in the same jurisdiction as a focal firm.
- electric utility industry
- environmental performance
- extra-jurisdictional regulation
- general method of moments estimator
- proactive strategy