The Inverted U‐Shaped Hypothesis and Firm Environmental Responsiveness: The Moderating Role of Institutional Alignment

Abstract

The impact of regulatory coercion on firm environmental responsiveness is well discussed by institutional theorists. The intuitive nature of the relationship is positive and monotonic, that is, the continuous strengthening of regulatory coercion prompts top management to be more environmentally responsive. This paper shows that: (1) overall, there is an inverted U‐shaped relationship between regulatory coercion and firm environmental responsiveness, that is, the continuous strengthening of regulatory coercion induces top management to bring their firms' environmental responsiveness up to a certain optimum level beyond which its ability to trigger more proactive and substantive environmental responsiveness begins to decelerate, while reactive and symbolic strategic conformity accelerates; (2) perceived institutional (mis)alignment moderates the inverted U‐shaped relationship between regulatory coercion and firm environmental responsiveness. Finally, results show that the moderated inverted U‐shaped hypothesis advances the long‐standing and contentious debate about the relationship between regulatory coercion and firm environmental responsiveness.

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