Regulatory Intermediaries under Institutional Complexity: Roles, Government Connection, and Market Performance

Intermediaries are a significant component of market and economic institutions. Although their importance has manifested across social and economic domains (i.e., finance, innovation, health care, education), research on regulatory intermediaries has thus far been limited. A regulatory intermediary is a third party that connects regulators and the parties they regulate by providing information and expertise (e.g., audit, inspection, rating, and ranking) to facilitate regulatory enforcement and compliance. The emerging scholarship focuses largely on the demand side of intermediary services in studying either regulators' engagement of intermediaries in enforcement and policy implementation or, more recently, firms' choice of intermediary in response to regulation. Less is known about how the supply side of intermediaries competes in the flourishing and evolving intermediary service market. This issue is particularly worthy of investigation in China, where intermediary involvement is thriving due to regulatory decentralization in many policy fields. Without a careful understanding of how intermediaries function as influential actors, one can hardly understand their collective role in expanding the reach and effectiveness of regulation. The literature sheds little light on this issue, and further study is essential to uncover its complexity and dynamics.To fill these gaps, the proposed study will investigate how intermediaries operate at the business-government interface with regard to environmental governance in China. Based on the wider intermediary literature, we will seek to answer three important research questions. (1) What is the role of intermediaries in the regulator-intermediary-target triad in shaping the regulatory process and its effectiveness? (2) How do regulatory intermediaries rely on government connections when competing for firm clients? (3) How do regulatory changes, intermediary market expansion, and public sector reform shape the impact of government connections on an intermediary's market performance? We will adopt a two-study multimethod design. Study 1 will seek to answer question 1 via policy archive analysis and in-depth interviews with intermediary entities, regulated firms, and regulatory officials in three selected cities (Guangzhou, Tianjin, and Chengdu). In Study 2, we will examine questions 2 and 3 by assembling a novel quantitative dataset of intermediaries that specialize in Environmental Impact Assessment in Guangdong province to test four hypotheses. This project will build on our previous research on firms' choice of intermediary in response to environmental regulation in China, and it will provide significant insights into the theoretical development and practical implications of intermediation in effective regulatory governance.