Peer Response to Regulatory Enforcement: Lobbying by Non-Sanctioned Firms

Abstract

Government agencies rely on general deterrence to protect the public. Firms utilize lobbying for influence and information purposes. This paper explores the intersection of general deterrence and lobbying by firms while investigating whether general deterrence efforts of regulators are met with a lobbying response. Specifically, we propose that following a competitor firm being sanctioned, the non-sanctioned peer firms will increase their amount of lobbying targeted at the sanctioning agency, and the key drivers of these increases in targeted lobbying will be penalty severity, concerns over likely reputational damage, and value alignment. We test our hypotheses using U.S. Environmental Protection Agency violations as a context, and they largely receive support.