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

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.