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Why Do Firms Obey?: the State of Regulatory Compliance Research in China

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Abstract

Enforcement and compliance is a classic issue of concern in regulation literature. Despite a vast literature on regulatory agencies, compliance behavior of the regulated parties, especially business firms, is much less understood. The existing compliance literature draws on evidence from western societies and has predominantly focused on compliance in rule of law systems. However, in China where the rule of law remains weak, many regulations take the form of administrative regulative documents and administrative orders, some of which are extra-legal yet widely used as the basis for enforcing policies. Therefore, it is of particular importance to extend the scope of compliance research to the broader domain of government requirements. The “pervasive threat” model of compliance represents a potentially promising attempt to capture how businesses factor regulatory officials’ discretion into compliance decision-making. Future research should investigate the relationship between “pervasive threat” and other explanations for compliance, the sensitivity of different types of firms to pervasive threat, as well as the applicability of this model across policy areas.

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Notes

  1. Despite the lack of formal definition for administrative regulative documents in the Chinese legal system, one of the most cited definitions for administrative regulative documents in the literature is general rules of action such as decisions and orders released by administrative agencies and other authorized organizations within their scope of power dictated by law in order to implement laws and enforce policy.

  2. These targets are mandatory in the sense that firm managers are held responsible for target performance through an evaluation system.

  3. Power rationing refers to temporary, often intermittent power shutdown.

  4. Please refer to the Guidelines Promoting the Healthy Development of SMEs released by General Office of the CPC Central Committee and the General Office of the State Council [General Office of the CPC Central Committee, No. 24, 2019].

  5. “Veto” targets mean that if a government agency fails to meet these targets, then the government and the corresponding leaders will be penalized regardless of their performance in other fields.

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Authors and Affiliations

  1. Division of Public Policy and Institute for Public Policy, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong

    Ye Qi

  2. School of Public Policy and Management, Tsinghua University, Beijing, China

    Xiaofan Zhao & Ye Qi

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  1. Xiaofan Zhao
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Zhao, X., Qi, Y. Why Do Firms Obey?: the State of Regulatory Compliance Research in China. J OF CHIN POLIT SCI 25, 339–352 (2020). https://doi.org/10.1007/s11366-020-09657-9

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