A Look at Firm—Regulator Exchanges

Abstract

This article examines the relational characteristics of firm—regulator interactions. Many political economists have focused on the relevance, costs, processes, and beneficiaries of regulation. Alternatively, most management researchers treat regulation as one of many environmental factors firms must consider in developing strategy. This article extends management research by examining the subjective, relational components of firm—regulator interactions. Using social exchange and relational governance theories, hypotheses are developed to examine how firms' interactions with their regulators affect both the frequency with which they are monitored and the evaluation they receive. A within-industry (i.e., banking), within-region (i.e., the Northeast) sample is used to examine the relational characteristics of firm—regulator interactions concerning the Community Reinvestment Act. The results indicate that relational characteristics explain a significant amount of incremental variance in predicting the frequency of monitoring and evaluation, over that explained by objective measures and prior performance.