Laws of Attraction: Regulatory Arbitrage in the Face of Activism in Right-To-Work States

Laws of Attraction: Regulatory Arbitrage in the Face of Activism in Right-To-Work States

By
Hayagreeva Rao, Lori Qingyuan Yue, Paul Ingram
American Sociological Review.
2011, Vol. 76, Issue 3, Pages 365-385

Past research recognizes that firms exploit regulatory variations to their advantage but depicts such regulatory arbitrage as a dyadic process between firms and regulators. We extend this account by including a firm’s non-market rivals and suggest that firms view regulatory differences as part of a corporate political opportunity structure and exploit regulatory variations to disadvantage their rivals. Empirically, we focus on variations in right-to-work (RTW) laws that signal the pro-business climate in a state; these laws exist in 22 U.S. states. Using a spatial-regression discontinuity design, we analyze how Walmart locates new stores in the face of anti-Walmart activists and exploits regulatory discontinuities on the borders between RTW and non-RTW states. We find that Walmart is more likely to propose new stores, and to open those stores even if they are protested, at the borders of RTW states, compared with the borders of neighboring non-RTW states. We conclude with a discussion of implications for the study of regulation, social movements, and organizations.