Institutional Intermediaries and Firm Choices in Response to Regulations

Abstract

This study develops a nuanced framework to unpack the heterogeneous mechanisms of institutional intermediaries’ efforts by aligning their bridging and buffering roles with the information and certification support they offer to clients. I further examine how these mechanisms explain firms’ intermediary choices in response to government regulations. Using a novel dataset of power plants across China, I find that the theorized intermediation mechanisms and the ways in which firms assess them are partially bounded by institutional complexities. Firms’ inexperience with regulations and their adoption of novel technologies are positively related to those firms’ selection of public intermediaries, with the former relationship strengthened when regulatory changes suggest a continuous need for policy updating. Meanwhile, firms’ noncompliance records and a lack of institutional linkage to the government are positively related to their reliance on private intermediaries’ buffering competency, with the latter relationship evident only in settings with an interventionist government. These findings contribute to the literature on the complex and dynamic value of intermediaries and firms’ intermediary choices at the intersection of management and government.