Regulatory Uncertainty: A Reason to Postpone Investments? Not Necessarily

Abstract

abstractThere is a polarity in the literature as to whether companies do or do not postpone investment decisions in the light of regulatory uncertainty. In the case of flexible regulation characterized by a high degree and discontinuous resolution of uncertainty, we show that companies do not necessarily postpone investment decisions. We trace this observation back to three motivations: securing competitive resources, leveraging complementary resources, and alleviating institutional pressure. We connect these motivations to fundamental principles of the resource‐based view and institutional theory and further show the existence of a regime where institutionally motivated and resource‐based actions are not necessarily decoupled. We base our research on a case study covering 80 per cent of the German power generation industry which faces regulatory uncertainty from the European CO2 Emission Trading Scheme.