The Contextual Role of Regulatory Stakeholder Pressure in Proactive Environmental Strategies: An Empirical Test of Competing Theoretical Perspectives

Abstract

Guided by two competing theoretical perspectives, we investigate the contextual role of perceived regulatory stakeholder pressure in the relationship between firms’ strategic orientation and their pursuit of a proactive environmental strategy (PES). While the enhancing perspective suggests that perceived regulatory stakeholder pressure strengthens the association between strategic orientation and PES, the buffering perspective argues that greater regulatory stakeholder pressure mitigates this relationship. Our study looks at a sample of 349 German energy sector firms to identify which perspective holds greater explanatory power. Surprisingly, the empirical findings go beyond the arguments made in the buffering perspective: high perceived regulatory stakeholder pressure not only weakens but also eradicates the relationship between strategic orientation and the pursuit of a PES. Our results indicate that in the case of high perceived regulatory stakeholder pressure, market-oriented considerations are eclipsed by the need to gain legitimacy within the regulatory stakeholder context.

Keywords

proactive environmental strategy contingent resource-based view regulatory stakeholder pressure strategic orientation

The crisis the world is currently facing regarding the natural environment presents a serious challenge. Research, politics, and the public all acknowledge that global environmental issues can only be solved if firms voluntarily and proactively engage in environmentally friendly behavior (Shrivastava, 1995). As such, proactive environmental strategies (PESs) have gained attention in the management literature as a means of reducing the adverse impact of firms on the environment (e.g., Aragón-Correa, Martín-Tapia, & Hurtado-Torres, 2013; Darnall, Henriques, & Sadorsky, 2010; Sharma & Vredenburg, 1998). We define a PES as a firm’s environmental proactivity, which implies the anticipation of environmental requirements and trends, and the alteration of the firm’s operations to prevent rather than to lighten negative environmental impact (Aragón-Correa & Sharma, 2003; Garcés-Ayerbe, Rivera-Torres, & Murillo-Luna, 2012). A PES involves pollution prevention rather than end-of-pipe solutions (Hart, 1995; Russo & Fouts, 1997) and requires top management support to manage the interface between the firm and its natural environment (Berry & Rondinelli, 1998; Menguc, Auh, & Ozanne, 2010).

Although notable progress has been made in the understanding of organizational characteristics that favor firms’ pursuit of a PES (e.g., Aragón-Correa, 1998; Christmann, 2000; Delmas, Hoffmann, & Kuss, 2011), little is known about the dependency of these processes on firms’ external business environment (Aragón-Correa & Sharma, 2003). Research on contingencies is crucial in the field of environmental management, as we need to learn whether the identified precursors of PES remain effective under varying conditions within the external business environment.

In choosing an environmental strategy, the regulatory context of the firm is of particular importance, as it frames managerial discretion in environmental decision making (Banerjee, 2001; Henriques & Sadorsky, 1996, 1999). Managers act as curial interpreter of the organizational context (Darnall et al., 2010). Thus, managerial perception of regulatory stakeholder pressure, which represents an integral part of firms’ organizational context, determines the managers’ view of potential competitive gains from using organizational resources in the pursuit of a PES (Aragón-Correa & Sharma, 2003; Dess & Beard, 1984).

While organizational characteristics such as strategic orientation underline a mainly self- or market-driven motivation toward solving environmental issues for the purpose of achieving competitive advantage (Aragón-Correa, 1998; Delmas et al., 2011), regulatory pressures are of a coercive nature, pushing firms toward the implementation of an environmental strategy (Kassinis & Vafeas, 2006). Thus, the question becomes how managers deal with these potentially conflicting factors in their pursuit of a PES.

To explain the contingent role of regulatory stakeholders in firms’ pursuit of a PES, two conflicting theoretical views can be found within the environmental management literature. The enhancing perspective infers that a business environment with high regulatory stakeholder pressure amplifies the positive link between strategic orientation and the pursuit of a PES because strategically oriented firms will anticipate future developments and therefore will be prepared to cope with a dynamic external environment (Aragón-Correa & Sharma, 2003; Hoffmann, Trautmann, & Hamprecht, 2009). In contrast, the buffering perspective argues that if managers feel confronted by strong regulatory stakeholder pressure, their discretion to act freely is restricted and the consequences of their decisions are diffuse (Aragón-Correa & Sharma, 2003; Sharma, 2000). Therefore, the association between strategic orientation and the pursuit of a PES might weaken if managers perceive high regulatory stakeholder pressure.

Despite the presence of these conflicting theoretical views regarding the contingent role of regulatory stakeholder pressure, environmental research has neither clearly distinguished between the theoretical arguments nor empirically tested their explanatory power. In this article, we develop and test competing hypotheses to determine the extent to which regulatory stakeholder pressure strengthens or weakens the role of strategic orientation toward customers, competitors, and technology in pursuing a PES. We thereby offer two major contributions to the environmental management and regulatory literature.

First, our study clarifies the views of two theoretical perspectives on the contingent role of regulatory stakeholder pressure: regulatory stakeholder pressure either enhances or buffers the association between firms’ strategic orientation and the pursuit of a PES. Accordingly, following the contingent resource-based view (RBV), our study advances the field’s understanding of the role of regulation by disentangling previously mingled theoretical arguments regarding its boundary influence. Modeling regulatory stakeholder pressure as a moderator thus extends the previous research on the influence of regulation on organizational outcomes such as innovation and environmental management (e.g., Jaffe & Palmer, 1997; Rugman & Verbeke, 1998; Triebswetter & Hitchens, 2005) by providing insights into its boundary influence on the organizational processes that lead to the pursuit of a PES. Thereby, we enable future research to address the contextual effects of environmental policies on strengthened theoretical grounds and under a new lens—the contingent RBV—which has so far not found much applicability in the regulatory research domain.

Second, our study underlines the importance of managerial cognition of the business environment for organizational behavior. We find that how managers perceive their firm’s business environment is likely to be key to the link between a firm’s strategic orientation and the extent to which it pursues a PES. Thus, our article advances the understanding of organizational behavior by highlighting the idea that attention to the constituents of the general business environment is relevant to firms’ environmental strategy. Whether a firm’s attention to strategic market constituents facilitates the pursuit of a PES depends on its managers’ perception of the pressure being applied by nonmarket constituents. Hence, our study substantiates the discussion regarding the importance of the managerial interpretation of PES as a threat or opportunity (e.g., López-Gamero, Molina-Azorín, & Claver-Cortés, 2010; Sharma, 2000). In looking at this issue, we learn not only how managers interpret their environment but also how their perceptions influence strategic decision making concerning firms’ resource utilization with regards to environmental issues.

Theoretical Framework and Hypotheses

Strategic Orientation and Proactive Environmental Strategies

Firms differ in the way they manage the interface between their business and the natural environment. Their approach toward environmental issues can be described along a continuum, from reactive to proactive (Aragón-Correa, 1998; Sharma, 2000). Thus, firms choose their environmental strategy by relying on ad hoc end-of-pipe solutions on the one extreme, to reflecting on and planning a pattern of sound practices secured by top management support on the other end (Aragón-Correa & Sharma, 2003; Berry & Rondinelli, 1998).

The degree of environmental proactivity in the form of a PES is closely related to firms’ overall strategic posture (Aragón-Correa, 1998; González-Benito & González-Benito, 2006) anchored in a firms’ strategic orientation. A strategic orientation is a behavioral culture (Dobni & Luffman, 2003) that describes a firm’s degree of attention to market constituents and reflects the extent to which a firm sustains processes to collect and integrate market intelligence for continuous superior performance (Gatignon & Xuereb, 1997; Hult & Ketchen, 2001; Narver & Slater, 1990; Slater, Olson, & Hult, 2006). A strategic orientation is composed of a firm’s orientation toward customers, competitors, and technology (Gatignon & Xuereb, 1997; Zhou & Li, 2010).

Following the RBV, firms’ strategic orientation is likely to be crucial to their selection of an environmental strategy. A pronounced strategic orientation reflects the attitude and behavior of a prospector (Miles & Snow, 1978) who recognizes, analyzes, and adequately responds to external requirements, including customer demands, competitor activities, and technological advancements (Gatignon & Xuereb, 1997; Zhou & Li, 2010). A strong strategic orientation favors the development of processes and routines (Theodosiou, Kehagias, & Katsikea, 2012; Zhou & Li, 2010), which equip firms to pursue a PES. Such strategic organizational processes and routines are likely to be unique to the firm and might therefore be difficult to imitate, be nonsubstitutable, and, thus, be rare and valuable so that they provide for a competitive advantage (Barney, 1991; Hart, 1995). Accordingly, the degree of firms’ orientation toward customers, competitors, and technology is likely to be associated with the pursuit of a PES for several reasons.

First, a strong customer orientation is proposed to favor the pursuit of a PES because customer-oriented firms focus on creating superior value to the firm’s target group (Hult & Ketchen, 2001; Narver & Slater, 1990). A customer-orientated firm continuously generates information about its customers by monitoring and assessing their needs (Kohli & Jaworski, 1990; Narver & Slater, 1990). The adequate understanding of its target group is to serve the firm in the development of paramount solutions for its customers (Hult & Ketchen, 2001; Narver & Slater, 1990).

Since the 1980s, the influence of business on the natural environment is of increasing concern for a wide span of stakeholders, including customers (Gadenne, Kennedy, & McKeiver, 2009; Petts, 1998). A study surveying German citizens’ environmental awareness shows that 71% of the respondents strongly agree that everyone should assume responsibility for the next generation in his or her scope of action (Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety, & Umweltbundesamt, 2017). Indeed, customers grant greater satisfaction when firms assume responsibility which eventually lifts firms’ market value (Luo & Bhattacharya, 2006). Similarly, customers in the business-to-business context value suppliers’ engagement in corporate social responsibility with greater customer loyalty (Homburg, Stierl, & Bornemann, 2013).

Customer-oriented firms build out processes and routines to integrate not only general but also environmental customer demands (Hofmann, Theyel, & Wood 2012; Tatoglu, Bayraktar, Sahadev, Demirbag, & Glaister, 2014), which facilitate innovation (González-Benito & González-Benito, 2006) and generate new suitable offerings for customers (Chen, Chen, & Zhou, 2014). Thus, firms with a strong customer orientation might tend to view a PES as an opportunity to either reduce the risk of consumer criticism concerning their environmental practices (Delmas & Toffel, 2008) or provide superior customer value to achieve a competitive advantage (Darnall, 2006; Luo & Bhattacharya, 2006).

Second, a strong competitor orientation should help firms pursue a PES. Firms with a strong competitor orientation identify, analyze, and respond to competitor action which enables them to determine their strengths and weaknesses compared to industry rivals (Gatignon & Xuereb, 1997; Zhou & Li, 2010). Profound understanding of competitor activities prepares firms to develop appropriate processes to stay ahead of competitors and thereby realize competitive advantage (Zhou & Li, 2010).

In this pursuit of competitive advantage, competitor-oriented firms try to find new ways of differentiating themselves from their industry peers in order to enhance competitiveness (Gatignon & Xuereb, 1997; Zhou & Li, 2010). A PES can be a vehicle of differentiation (Orsato, 2006; Sharma & Vredenburg, 1998) and thus particularly competitor-oriented firms should see value in pursuing such a proactive strategy. By actively collecting competitor-related information and monitoring rival behavior, competitor-oriented firms recognize changes in their business environment earlier (Zhou & Li, 2010) allowing competitor-oriented firms to work at the innovation frontier, also regarding environmental trends. Accordingly, insights from competitor behavior help firms differentiate themselves via ahead-of-market environmental practices in form of a PES.

Third, a technology orientation is likely to relate to the pursuit of a PES because process technologies have been recognized as core building block of PESs, with the potential to create competitive advantage (Christmann, 2000; Klassen & Whybark, 1999). The related literature shows that PESs are connected with the use and development of environmental technologies in terms of cost reduction and quality improvements (Banerjee, 2001; Chan, 2005; Hofmann et al., 2012). In the current environmental climate, firms are being forced to continuously identify, develop, and implement advanced environmental technologies and to redesign their processes to be less environmentally harmful (Hart & Dowell, 2011; Shrivastava, 1995).

Technology-orientated firms identify, analyze, and react to technological changes in the business environment (Gatignon & Xuereb, 1997; Zhou & Li, 2010). A technology orientation enables a firm to recognize emerging or potential technological trends and to reconfigure resources to capitalize on opportunities (Aragón-Correra, 1998; Zhou, Yim, & Tse, 2005). Moreover, technology-orientated firms use their own knowledge to develop new technical solutions (Gatignon & Xuereb, 1997; Voss & Voss, 2000). Since developing new and innovative environmental technologies can provide firms with significant efficiency improvements (Christmann, 2000), technology-orientated firms may gain a competitive advantage from their ability to identify and develop new environmental solutions.

Thus, we argue that a strong strategic orientation can help generate possible solutions to manage the complex interface between firms and the natural environment. Strategically oriented firms are likely to view the pursuit of a PES as an opportunity to realize competitive advantage by providing superior value, outperforming competitors, and effectuating efficiency improvements. In this way, strategically orientated firms achieve alignment between their strategy and the market environment by following a PES. The above considerations lead to the following set of baseline hypotheses:

Hypothesis 1a: A firm’s customer orientation is positively related to the pursuit of a proactive environmental strategy.

Hypothesis 1b: A firm’s competitive orientation is positively related to the pursuit of a proactive environmental strategy.

Hypothesis 1c: A firm’s technology orientation is positively related to the pursuit of a proactive environmental strategy.

The Contingent Role of Regulatory Stakeholder Pressure

According to the contingent RBV, the relationship between organizational characteristics and the pursuit of a PES is moderated by managers’ perception of the general business environment (Aragón-Correa & Sharma, 2003). Managers can perceive the business environment as either facilitating or restricting the firm’s internal processes associated with environmental solutions in pollution prevention (Hoffman, 2001). Thus, whether managers perceive the firm’s business environment as supporting or preempting opportunities to realize competitive advantage strongly influences environmental decision making (Aragón-Correa & Sharma, 2003).

With regard to environmental strategies, managerial perception of pressure exerted by external stakeholders has gained much attention in research on firms’ proactivity (e.g., Darnall et al., 2010; Murillo-Luna, Gracés-Ayerbe, & Rivera-Torres, 2008; Sharma & Henriques, 2005). Stakeholders refer to “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984, p. 46). In particular, external stakeholder groups have the power to withhold resources or influence their usage (Frooman, 1999; Sharma & Henriques, 2005), and can thereby directly affect firms’ strategy (Donaldson & Preston, 1995; Fineman & Clarke, 1996; Henriques & Sadorsky, 1999).

Regulatory stakeholders play a unique role with regard to environmental strategies (Davidson & Worrell, 2001; Henriques & Sadorsky, 1999). Regulatory stakeholders hold a stake in or represent public policy (Baron, 1995; Kassinis & Vafeas, 2006). Participants in the regulatory context fight an “institutional war” (Hoffman, 1999, p. 367) that leads to the emergence of predominant guidelines to direct firms’ behavior within an organizational field. Increasingly stringent national and international laws and regulations regarding environmental protection (Hofmann et al., 2012) emphasize the relevance of regulatory stakeholders.

According to the contingent RBV, the positive link between a firm’s strategic orientation and the pursuit of a PES should be bound to how much pressure managers perceive from the regulatory context. In this way, the firm’s business environment shapes managers’ perception of the chances of achieving a competitive advantage when using organizational resources in the pursuit of a PES (Aragón-Correa & Sharma, 2003; Garcés-Ayerbe et al., 2012).

Although scholars have recognized the importance of regulatory stakeholders (Henriques & Sadorsky, 1996) and the interdependence between the firm’s internal factors and external factors in the general business environment (Aragón-Correa & Sharma, 2003; Martinez-del-Rio, Antolin-Lopez, & Cespedes-Lorente, 2015; Rueda-Manzanares, Aragón-Correa, & Sharma, 2008), the contingent role of regulatory stakeholders has not yet gained much attention in the PES research. Among the few empirical works, Menguc and colleagues (2010) argue that regulatory stakeholders’ power to withhold important resources, along with firms’ need to maintain legitimacy, will drive entrepreneurial-orientated firms to adopt a PES. In investigating direct regulatory effects, Darnall (2006) and Delmas and Toffel (2008) argue similarly, adding that firms might aim to establish a close relationship with regulators in order to influence future policy.

Those arguments, however, reveal two problems in the field of PES research. First, the theoretical explanations of the direct effect and contingent role of regulatory stakeholder pressure overlap and are therefore diffuse. Second, existing empirical research on regulatory stakeholder pressure mainly reflects an enhancing perspective of regulatory stakeholders, although theoretical works, in particular those following the contingent RBV, propose arguments supporting a buffering perspective (Aragón-Correra & Sharma, 2003). This discrepancy might be due to the ambiguous interplay between a coercive regulatory context and firms’ pursuit of a PES, which, in contrast, has a market-driven and self-initiated nature (Sharma & Vredenburg, 1998). Thus, in the following, we distinguish between the theoretical viewpoints and develop competing hypotheses—based on the enhancing versus buffering perspectives—to explain how regulatory stakeholder pressure alters the mechanisms that connect a firm’s strategic orientation with the pursuit of a PES. To this end, in each paragraph we describe what the perception of high regulatory stakeholder pressure means to the firm and its business environment and why this condition changes the link between strategic orientation and PES.

The Enhancing Perspective

Following the enhancing perspective, managers’ perception of high regulatory stakeholder pressure strengthens the link between firms’ strategic orientation and their pursuit of a PES for at least three reasons.

First, in situations marked by high regulatory stakeholder pressure, regulatory stakeholders have a greater ability to induce changes in the form of, for instance, taxes affecting product demand, thereby influencing the size and structure of the market (Kassinis & Vafeas, 2006). Thus, if managers perceive the existence of high regulatory stakeholder pressure, they might feel confronted by dynamism and regulatory uncertainty, especially concerning health, safety, and environmental issues (McCaffrey, 1982). Strategically oriented firms are prepared to excel in such a dynamic environment (Zhou & Li, 2010) and are likely to view rising state uncertainty as an opportunity to generate competitive advantage (Aragón-Correa & Sharma, 2003; Sharma, Aragón-Correa, & Rueda-Manzanares, 2007). Since strategically oriented firms are highly alert to customer needs, competitor behavior, and technological advancements, they will have established a repertoire of practices that match the characteristics of their business environment (Gatignon & Xuereb, 1997; Zhou & Li, 2010). Hence, technology-oriented firms are likely to possess flexible technologies and be aware of alternatives. In an environment of high regulatory stakeholder pressure, technology-oriented firms are able to integrate the alternatives demanded by stakeholders more easily than firms with a weaker technological orientation (Aragón-Correa, 1998). Moreover, customer- and competitor-oriented firms might expect uncertainties in the external business environment to pose difficulties for less strategically oriented competitors. Thus, if managers perceive high regulatory stakeholder pressure, a strategically oriented firm might interpret the pursuit of a PES as an even greater opportunity to achieve competitive advantage. Managers of strategically oriented firms know that their firms possess the necessary processes and routines to sustain advanced environmental practices in an uncertain environment.

Second, managers who perceive high regulatory stakeholder pressure are likely to expect the enactment of stricter rules and environmental standards (Davidson & Worrell, 2001). High regulatory stakeholder pressure might thus reinforce the association between firms’ strategic orientation toward market constituents and the pursuit of a PES, as strategically oriented firms might want to influence future regulatory developments in order to align their own business strategy with customers’ needs and potential technologies. In this regard, strategically oriented firms might aim to deter more rigorous legislation concerning environmental issues (Decker, 2005; Delmas & Toffel, 2008; Maxwell & Decker, 2006). Thus, to maintain their competitive advantage via a PES, or to prevent repeated and costly adaptions to their production processes (Bansal & Roth, 2000), strategic orientation could be associated even more strongly with the pursuit of a PES in the case of high perceived regulatory stakeholder pressure.

Third, if managers perceive high regulatory stakeholder pressure, they can expect this pressure to also affect their industry peers. Hence, a higher overall standard of environmental management practices will apply to all actors within the industry (DiMaggio & Powell, 1983; Jennings & Zandbergen, 1995). To consistently offer customer value that is above the industry average, strategically oriented firms are likely to see an increased necessity of pursuing a PES if they perceive high regulatory pressure. Customer- and competitor-oriented firms draw much of their competitive advantage from a unique selling proposition that distinguishes them from competitors and offers superior values to customers; they risk losing this advantage if they do not exceed the standards of their competitive environment. Technology-oriented firms also invest highly in continuously monitoring and adopting technological advances (Aragón-Correa, 1998). Because of this, they might aim to exhibit high environmental engagement in pursuing a PES, for risk of sunk costs, which are lost if the firms do not secure their competitive advantage.

Hence, an enhancing perspective supposes the following set of hypotheses:

Hypothesis 2a: Perceived regulatory stakeholder pressure moderates the relationship between customer orientation and proactive environmental strategy such that the relationship becomes stronger under greater perceived regulatory stakeholder pressure.

Hypothesis 2b: Perceived regulatory stakeholder pressure moderates the relationship between competitor orientation and proactive environmental strategy such that the relationship becomes stronger under greater perceived regulatory stakeholder pressure.

Hypothesis 2c: Perceived regulatory stakeholder pressure moderates the relationship between technology orientation and proactive environmental strategy such that the relationship becomes stronger under greater perceived regulatory stakeholder pressure.

The Buffering Perspective

In contrast to the enhancing perspective, the buffering perspective gives rise to the assumption that greater regulatory stakeholder pressure bounds the mechanisms that positively link a firm’s strategic orientation with the pursuit of a PES. This logic grounds on three reasons.

First, perceived regulatory stakeholder pressure is likely to reflect strong environmental regulation (Henriques & Sadorsky, 1999). In such a case, advanced environmental practices provide no differentiation from competitors, but rather become the norm in the firm’s business environment (Christmann, 2004; Sharma et al., 2007). Hence, in a situation where managers perceive high regulatory stakeholder pressure strategically orientated firms might anticipate diminishing marginal returns in the pursuit of a PES because of those firms’ pronounced market intelligence. Thus, high regulatory pressure could render a customer, competitor, or technology orientation less associated with the pursuit of a PES.

Second, dynamism and regulatory uncertainty accompanying high regulatory stakeholder pressure imply aggravated predictability of the prospective legislative framework (Birnbaum, 1984). Thus, in the case of high regulatory stakeholder pressure, it might be difficult for strategically oriented firms to know whether pursuing a PES will generate the expected competitive advantage (Aragón-Correa & Sharma, 2003). In this sense, customer- and competitor-oriented firms neither have an advantage nor feel motivated to follow a PES if customer demands and competitor behavior could misguide strategic decision making concerning environmental issues. Similarly, advanced technological know-how acquired via a technology orientation might not prevent a firm from needing to invest in refitting costs if future regulations require following a different path than was chosen in the pursuit of a PES. This should reduce the positive relationship between strategic orientation and PES if strong regulatory stakeholder pressure is perceived.

Third, if managers perceive high regulatory stakeholder pressure, they might feel forced to deal with a high number of relevant parties. Strategically oriented firms already observing and responding to customers’ and competitors’ demands will be faced with a greater number of demands if regulatory stakeholders are perceived to play an additional role. A business environment with great regulatory stakeholder pressure demands managers to process additional information (Tung, 1979) and compensate for information asymmetries (e.g., via maintaining close bonds with regulators). Although strategically oriented firms might show a greater ability to recognize and convert information concerning customers, competitors, or technology, different information processing capabilities are needed with regard to the legislative process. Because strategically oriented firms are confronted with additional resources that require strong relationships with policy makers in case of high regulatory pressure (Hillman & Hitt, 1999), these firms have less slack available to maintain a PES. Therefore, under high regulatory stakeholder pressure, strategically oriented firms would be of no advantage in following a PES because their established processes concentrate on market (customers, competitors, technology) and not nonmarket constituents (regulatory stakeholders) (Figure 1).

Figure 1.

Regulatory stakeholder pressure, strategic orientation, proactive environmental strategy.

Hence, a buffering perspective supposes the following set of hypotheses:

Hypothesis 2a-alt: Perceived regulatory stakeholder pressure moderates the relationship between customer orientation and a proactive environmental strategy such that the relationship becomes weaker under greater perceived regulatory stakeholder pressure.

Hypothesis 2b-alt: Perceived regulatory stakeholder pressure moderates the relationship between competitor orientation and proactive environmental strategy such that the relationship becomes weaker under greater perceived regulatory stakeholder pressure.

Hypothesis 2c-alt: Perceived regulatory stakeholder pressure moderates the relationship between technology orientation and proactive environmental strategy such that the relationship becomes weaker under greater perceived regulatory stakeholder pressure.

Method

Data

The present study uses survey data from 349 firms operating in the German energy sector. As we aimed to investigate the conditions under which firms with similar organizational characteristics might show diverging degrees of proactivity toward environmental management, we selected a single industry context. The analysis of firms within the same organizational field reinforces comparability within the sample. Thereby, we investigate differences in perception that might be attributable to varying interpretations of the environment, minimizing de facto differences in regulatory pressure (Sharma, 2000).

We drew on the energy sector because it is a dynamic industry in which all actors are profoundly affected by regulation, political demands, and lobbying. In recent years, the German energy sector has faced major changes with regard to market structure and regulation. Under the European legislative framework of directives regarding environmental issues such as renewable energy sources (directive 2009/28/EC) or eco-design (directive 2009/125/EC), the German government has established a wide set of acts and ordinances concerning environmental protection (Federal Ministry for Economic Affairs and Energy, 2014). Germany’s national strategy, called “Energy Concept,” was passed in 2010 and maps the country’s “transition into the age of renewables” (Federal Ministry for Economic Affairs and Energy, 2014), implying wide and system-changing consequences. The phase-out of nuclear energy leading up to 2022 and the increase in the share of renewables used in power generation to up to 80% by 2050 (Federal Ministry of Economics and Technology, 2012) are major goals anchored in the Energy Concept, and they affect all participants in the energy sector. Central instruments used to regulate market actors and incite them to contribute to the stated objectives make up the Act on the Development of Renewable Energy (EEG) (Federal Ministry for Economic Affairs and Energy, 2014) and the Federal Act on Emissions Control (BImSCHG) (Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety, 2009). The EEG subsidizes renewable electricity production via guaranteed fixed prices and priority feed-in of renewable energy to the grid (Rueb, Heinemann, Ulbricht, & Zohlnhoefer, 2015). The BImSCHG involves mandatory licensing for the construction, operation, marketing, and importation of installations (e.g., production facilities), with the aim of preventing emissions to air, water, and soil (Federal Ministry for the Environment, Nature Conservation, & Building and Nuclear Safety, 2009). While such acts might increase the demand for certain energy-generating products and related services, firms will bear additional costs due to increased energy prices and stricter standards concerning production facility emissions.

Our sample industry is particularly suited to the research context for two reasons. First, in dynamic environments such as the energy sector, firms’ strategic choices are highly related to organizational survival. Satisfying customer needs and preferences, adequately reacting to competitor activity, and using up-to-date technology determine firms’ success (Rauch, Wiklund, Lumpkin, & Frese, 2009). Second, the outlined legislative context emphasizes how firms operating in the energy sector are vulnerable to regulatory stakeholder pressure. Accordingly, we believe that the study’s sample is suitable for testing our proposed research model, and we expect that the relationship between customer, competitor, and technology orientation and regulatory stakeholder pressure on PES will be relevant and observable.

To identify relevant firms for the sample, we drew on the membership data of the German Association of Energy and Water Industries and related official energy sector subassociations and state-owned firm indexes. We identified a sample of 2,581 firms within the data of the associations. Data collection was conducted via a standardized web survey on an established online survey platform. The questionnaire was sent to the firms’ chief executive officers (CEOs), as we assumed that the CEOs would have the best knowledge concerning their firm’s environmental strategy, strategic orientation and perceived regulatory stakeholder pressure. If, however, the CEO did not feel that he or she was the right contact person, the questionnaire was sent to the person who could most appropriately answer questions related to the firm’s environmental strategy. The same or a similar process has been applied multiple times in previous studies (e.g., Aragón-Correa, 1998; Delmas et al., 2011; Rueda-Manzanares et al., 2008). Because the core of our article was to investigate managers’ perception of the general business environment, we followed other studies by using top managers as our main information source (e.g., Daft, Sormunen, & Parks, 1988; Martin-Tapia, Aragón-Correa, & Senise-Barrio, 2008; Tatoglu et al., 2014). Additionally, our study predominantly looked at small- and medium-sized companies, in which CEOs are the best point of intersection regarding the information of interest (Delmas et al., 2011; Ling, Simsek, Lubatkin, & Veiga, 2008; Zapkau, Schwens, & Kabst, 2014).

After following up with the 2,581 sample firms, we received 487 responses. According to Klassen and Jacobs’ (2001) analysis of web, electronic, and mail survey technologies, our response rate of 19% was within an expected and acceptable range. After the exclusion of firms with missing data, our final data set included 349 firms.

Our sample firms were operating along the energy value chain, from the manufacturer of technology-intensive products (46%), the supply of products to the energy sector (37%), the planning of energy facilities (64%), and the operation and maintenance of energy facilities (42%) to consultation regarding energy utilization (45%). About 10% of the sample firms were energy-producing private investor companies (mostly solar park operators), while 6% were public utilities, wholly or partially owned by the state or communities. Of the sample firms, 56% were engaged in photovoltaics, 35% in biomass, 34% in solar energy, and 31% in wind energy. Thus, many firms held a diversified portfolio of business activities spanning different stages of the value chain. Equally, the customer base of our sample firms shows some diversity: 12.3% business-to-consumer (e.g., photovoltaics installation), 39.8% business-to-business (e.g., manufacturer of products for energy production), and 47.9% both (e.g., supply of electricity). The average firm size was 676 employees, with a right-skewed distribution representative of the industry (Federal Statistical Office, 2015). The average firm age was 19 years. Hence, the sample reflects the general industry dynamics, including the strong growth in the number of actors since the decentralization of the German energy sector began in the 1990s (Strunz, 2014).

Measurements

We collected data for the dependent, independent, and moderator variables using 5-point Likert-type scale instruments (1 = “do not agree at all” to 5 = “strongly agree”). The scales were adapted from previously tested multi-item measures to enhance the reliability and validity of our measurement instruments (see the appendix).

Proactive Environmental Strategy

As stated earlier, a PES involves pollution prevention rather than end-of-pipe solutions (Hart, 1995; Russo & Fouts, 1997) and requires top management support in managing the interface between a firm and the natural environment (Berry & Rondinelli, 1998; Menguc et al., 2010). For this, we applied a six-item measurement to assess firms’ pollution prevention practices and top management support based on the extant literature.

Pollution prevention was assessed by three items (Cronbach’s α = .67) derived from Bansal (2005), Chan (2005), and Sharma and Vredenburg (1998): whether the firm applies the pollution prevention practices of environmental process optimization, waste disposal systems, and resource recycling to decrease the impact of the firm’s processes on the natural environment. As PES implies organizational commitment (Aragón-Correa & Sharma, 2003; Chan, 2005; Darnall et al., 2010; Menguc et al., 2010), we included a set of three items measuring top management support (Cronbach’s α = .74). Based on the items developed by Wagner and Schaltegger (2004), we asked each CEO whether his or her respective firm’s top management was convinced that environmental management is positively related to resource utilization, cost efficiency, and market competitiveness.

To account for the multifaceted construct of a PES, we followed previous studies (compare Anton, Deltas, & Khanna, 2004; Darnall et al., 2010) and averaged all six items into one aggregate item that reflected pollution prevention and top management support in a single PES index score. A high score was indicative of a high degree of proactivity in a firm’s environmental strategy.

Consistent with Gatignon and Xuereb (1997) and Zhou and Li (2010), we measured three distinct subconstructs of a firm’s strategic orientation: customer, competitor, and technology orientation. We drew our measures of customer and competitor orientation from Narver and Slater (1990), while our items for technology orientation were based on Gatignon and Xuereb (1997).

Customer orientation was measured using three items (Cronbach’s α = .74). We asked each CEO whether his or her respective firm was proactive in collecting information on customer needs, whether the firm possessed the capacity to analyze this information, and whether the firm had the will to meet the needs of customers (Gatignon & Xuereb, 1997; Zhou & Li, 2010). We measured competitor orientation using another three items (Cronbach’s α = .79). Each CEO was asked whether his or her respective firm was proactive in identifying competitor activity, whether the firm possessed the capacity to react to competitor activity, and whether the firm had the will to respond to competitor activity (Gatignon & Xuereb, 1997; Zhou & Li, 2010). Technology orientation was measured using four items (Cronbach’s α = .85). We asked each CEO whether his or her respective firm used sophisticated technologies in new product development, whether the firm rapidly integrated new technologies into products and processes, and whether the firm was proactive in developing new technologies and product ideas (Gatignon & Xuereb, 1997; Zhou & Li, 2010).

Regulatory Stakeholder Pressure

The regulatory stakeholder pressure perceived by firm management was derived from the stakeholder pressure scale developed by Henriques and Sadorsky (1996). This approach is similar to other studies investigating the effect of stakeholder pressure on environmental management strategies (e.g., Buysse & Verbeke, 2003; Delmas & Toffel, 2008; Murillo-Luna et al., 2008). Each CEO was asked to rate his or her perception of the intensity of different sources of stakeholder pressure on the firm’s operational field within the renewable energy sector (1 = “not at all intensive” to 5 = “very intensive”). We performed an exploratory factor analysis using principal component analysis with varimax rotation. The results revealed that the three items of regulations (0.766), politics (0.831), and lobby groups (0.687) all load onto one factor (eigenvalue: 2.717). Cronbach’s alpha (.724) also suggested an adequate level of reliability of the scale. We thus calculated regulatory stakeholder pressure by composing the mean score of the three indicators. This follows other studies that have interpreted the current regulatory framework and parties participating in the legislative process (e.g., political and trade associations) as one factor (e.g., Buysse & Verbeke, 2003; Henriques & Sadorsky, 1999).

Control Variables

We included multiple control variables in this study. First, we added firm age, measured by subtracting the year the company was founded from the year the data were collected. Second, we controlled for firm size by assessing the natural logarithm of the number of employees in each company. Third, we included firms’ governmental relationships by asking the respondents whether the firms possessed established relationships with legal authorities, government departments, and ministries. Fourth, we controlled for the business segment by creating a dummy variable that took the value of “1” when firms were active in producing products for the construction of facilities and “0” otherwise. Fifth, we added a variable called “public utility,” which controlled for whether entities that produce, transmit, or distribute energy and are (partially) owned by the state or communities are subject to different effects (Russo, 1992). Sixth, we added the control variable of innovation by asking each CEO whether changes in his or her respective firm’s production had been mostly minor in nature during the past 3 years (reversed, Hofmann et al., 2012).

Assessing Reliability and Validity

Before testing the hypotheses, additional checks on the quality of the data were performed. The Cronbach’s alphas for all scales showed acceptable values, indicating good internal consistency and consequently, good reliability of all constructs. We computed the variance inflation factor values to eliminate the risk of multicollinearity. The values did not exceed the maximum of 2.5, as recommended by Allison (1999). Thus, there was no serious risk of multicollinearity between the independent, moderator, and control variables. Table 1 provides the means, standard deviations, and correlations of all variables in the model.

Table 1.

Pearson Correlation Coefficients.

Variable	M	SD	AVE	Proactive Environmental Strategy	Customer Orientation	Competitor Orientation	Technology Orientation	Regulatory Pressure	Governmental Relations	Firm Age	Firm Size^a	Business Segment	Public Utility
Proactive Environmental Strategy	3.69	0.54
Customer orientation	4.19	0.66	0.66	0.211***
Competitor orientation	3.63	0.78	0.60	0.174**	0.426***
Technology orientation	3.45	0.97	0.67	0.177***	0.357***	0.275***
Regulatory pressure	3.42	0.99		0.053	0.035	0.085	−0.094
Firm age	19.00	25.37		−0.071	−0.079	0.030	−0.006	−0.128*
Firm size^a	2.92	1.99		−0.085	−0.064	0.074	0.124*	−0.064	0.549***
Governmental relations	2.74	1.18		0.072	0.090^†	0.112*	0.105^†	0.048	0.127*	0.284***
Business segment	0.78	0.41		0.045	0.011	−0.065	0.158**	0.227***	−0.078	−0.037	−0.026
Public utility	0.06	0.24		−0.110*	−0.186***	0.033	−0.223	0.124*	0.343***	0.292***	0.116*	−0.158*
Innovation	3.93	1.13		0.057	0.263***	0.191***	0.414***	−0.078	0.002	0.072	0.007	0.161*	−0.068

Note. AVE = average variance extracted.

Natural logarithm of number of employees.

†

Significant at 10%. *Significant at 5%. **Significant at 1%. ***Significant at 0.1 % (n = 349).

To ensure validity, we adapted our measurements from established scales and tested our measurement model by means of confirmatory factor analysis (CFA). The CFA showed that a 5-factor model has an acceptable fit (χ²/df = 1.593; p < .01; root mean square error of approximation [RMSEA] = 0.03; confirmatory fit index [CFI] = 0.96), supporting the validity of our measurement model. Additionally, we calculated the average variance extracted (AVE) for each applicable construct. Since all AVE scores were above the cutoff value, convergent validity is supported (Table 1). To assess discriminant validity, we compared the square root of each AVE with the bivariate correlations. The square root of each AVE exceeded the value of the bivariate correlation between the respective variable and all covariates, supporting the discriminant validity of our constructs (Chin, 1998). To further test discriminant validity, we conducted several chi-square difference tests. We compared the chi-square values and the degrees of freedom between the one- and two-factor models, which we computed for each pair of variables (Anderson & Gerbing, 1988; Baum, Schaefer, & Kabst, 2016). The results of these tests also supported discriminant validity, as the chi-square values of the one-factor models were all significantly higher than those of the two-factor models in every comparison (O’Leary-Kelly & Vokurka, 1998). The lowest chi-square difference was found for the two-factor model of competitor and technology orientation, Δχ²(df) = 103.27 (1).

Because this study relies on self-reported data collected from one person per firm, we checked for possible difficulties stemming from common method bias (CMB). We applied multiple strategies to assess the existence of CMB, as recommended by Podsakoff, MacKenzie, Lee, and Podsakoff (2003). One of the most prominent sources of CMB is measurement of both the predictor and the criterion variables by the same respondent (Podsakoff et al., 2003). Therefore, we sent a second, similar questionnaire to another member of management at the participating firms. We received 44 second responses that could be matched to the first round of questionnaires. In controlling for CMB, we assessed the interrater reliability between the two respondents from each of the 44 firms by means of intraclass correlation coefficients (ICCs). The ICCs for our scales exhibited high interrater reliability (Shrout & Fleiss, 1979); all were at the 0.001 level (proactive environmental strategy: 0.78, customer orientation: 0.78, competitor orientation: 0.80, technology orientation: 0.86, regulatory stakeholder pressure: 0.84).

To further protect against CMB, we applied additional measures. The questionnaire was conceptualized with additional questions placed in between those measuring the independent and dependent variables to avoid respondents making connections between variables. Additionally, Harman’s one-factor test (Podsakoff & Organ, 1986) was used as an ex post test to evaluate the magnitude of CMB. The analysis revealed four factors with eigenvalues greater than 1 that together accounted for 54.3% of the total variance. No single factor accounted for the majority of the variance. These results indicate that the data were not affected by CMB. Finally, we included interactions in our analyses that might reduce the potential threat of CMB, consistent with Chang, van Witteloostuijn, and Eden (2010). In summary, all tests for CMB indicated that CMB was not a serious threat to the validity of our analyses.

To assess nonresponse bias, we followed Armstrong and Overton (1977) and controlled for differences between early and late respondents under the assumption that late respondents are more similar to nonrespondents than early respondents are. We conducted t tests for the variables of interest (e.g., customer orientation); these tests yielded nonsignificant results across early and late respondents (p > .1). Additionally, we compared our sample’s characteristics with general statistics from the German energy sector (Federal Statistical Office, 2015). This comparison revealed a very similar distribution in our sample to the overall population of firms in the sector. Thus, we had reasonable indication that our sample was representative of the population.

We performed robustness tests. First, we repeated our regression analysis without public utilities (partially) owned by the state or communities as these firms might be exposed to specific type of regulation (e.g., of their profits) that might affect our investigated relationships. When excluding public utilities, the results of our hypothesized results remain stable: The interaction effect of perceived regulatory stakeholder pressure with customer and competitor orientation are significant (β = −0.120, p = .029; β = −0.121, p = .029), while the one with technology remains insignificant (compare results of main analysis in Table 3).

Second, to approach the question if it is regulatory stakeholder pressure moderating strategic orientations or the other way around, we followed the suggestion of one of the reviewers and conducted split sample analyses. In that regard, we split our sample in a first analysis along the median of regulatory stakeholder pressure and in a second analysis along the median of strategic orientation and then compare the resulting models with each other (Iacobucci, Posavac, Kardes, Schneider, & Popovich, 2015). We observe that the models provide a slightly better fit for a split along regulatory stakeholder pressure. Splitting the sample along strategic orientation does not yield a sufficient goodness of fit under high strategic orientation. Thus, the split sample analysis seems to suggest regulatory stakeholder pressure as the moderator and strategic orientation as the independent variable. We have to note that this analysis can only provide us with a rather vague tendency on the direction of moderation and thus should only be seen as a supplement to our theoretical reasoning (Aguinis & Gottfredson, 2010; Aiken & West, 1991).¹

Results

Testing the Hypotheses

We used a multivariate regression model to analyze multiple moderation effects with one dependent variable. Regression modeling is an adequate and widely used method for analyzing interaction effects (e.g., Anderson & Bateman, 2000; Darnall et al., 2010; Russo & Fouts, 1997), which are the focus of the current investigation. To avoid multicollinearity and for easy interpretation of interactions, we standardized all variables before creating interaction terms, as suggested by Aiken and West (1991). To sharpen our understanding of the moderating effect of regulatory stakeholder pressure on the relationship between strategic orientation and the pursuit of a PES, we plotted the significant interaction effects (Figures 2 and 3).

Figure 2.

Interaction effect between customer orientation and regulatory stakeholder pressure (H2a/H2a-alt).

Figure 3.

Interaction effect between competitor orientation and regulatory stakeholder pressure (H2b/H2b-alt).

A stepwise approach was used to assess the model-fit change of each model. The stepwise procedure resulted in six models for the analysis, including customer, competitor, and technology orientation (Table 2). Model 1 includes the control variables and explains only a marginal amount of variance. Adding the strategic orientation variables (Model 2) provides a significant increase in the variance explained (Δ adjusted R² = .044, p = .000). The results show that customer, competitor, and technology orientation all have a positive and significant association with the pursuit of a PES, thereby supporting our baseline hypotheses (β = 0.116, p = .062; β = 0.104, p = .080; and β = 0.115, p = .068 for H1a to H1c, respectively). Model 3 includes the moderator variable of regulatory stakeholder pressure; this does not significantly increase the variance explained. Regulatory stakeholder pressure has no significant first-order effect on the pursuit of a PES.

Table 2.

Regression Analysis.

Dependent Variable: Proactive Environmental Strategy
	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6
Step 1: Control variables
Firm age	−0.003	0.000	0.007	0.016	0.004	0.008
Firm size^a	−0.091	−0.103	−0.103	−0.113^†	−0.107	−0.104
Governmental relations	0.108^†	0.073	0.071	0.079	0.082	0.078
Business segment	0.021	0.030	0.018	0.021	0.019	0.015
Public utility	−0.088	−0.043	−0.051	−0.061	−0.055	−0.056
Innovation	0.054	−0.041	−0.037	−0.037	−0.033	−0.035
Step 2: Independent variables
Customer orientation		0.116^†	0.113^†	0.108^†	0.102	0.109^†
Competitor orientation		0.104^†	0.099^†	0.089	0.102*	0.091
Technology orientation		0.115^†	0.120^†	0.117^†	0.105*	0.126*
Step 3: Moderator variable
Regulatory stakeholder pressure			0.043	0.044	0.022	0.044
Step 4: Interaction variables
Customer orientation × regulatory stakeholder pressure				−0.113*
Competitor orientation × regulatory stakeholder pressure					−0.117*
Technology orientation × regulatory stakeholder pressure						−0.053
F	1.720	3.290***	3.020**	3.190***	3.220***	2.830**
Adjusted R²	0.012	0.056	0.055	0.065	0.065	0.055
Change in adjusted R²		0.044***	−0.001	0.010*	0.011*	0.000

Note. Standardized variables for interaction terms. Beta coefficients of the linear regression analysis are reported.

Natural logarithm of number of employees.

†

Significant at 10%; *Significant at 5%; **Significant at 1%; ***Significant at 0.1% (n = 349).

To test our moderation hypotheses and avoid multicollinearity between the product terms, we included the interaction terms consecutively in Models 4 to 6 (similar to, e.g., Aragón-Correa et al., 2013; Maekelburger, Schwens, & Kabst, 2012). Models 4 and 5 show a significant increase in the variance explained compared to Model 3 (Δ adjusted R² = .010, p = .032; Δ adjusted R² = .011, p = .028). We found that regulatory stakeholder pressure significantly diminishes the relationship between strategic orientation and the pursuit of a PES. Thus, H2a-alt and H2b-alt, which assume that customer orientation and competitor orientation have a weaker association with PES when regulatory stakeholder pressure is high, are supported (β = −0.113, p = .032; β = −0.117, p = .028). In the case of H2c/H2c-alt, which assume that regulatory stakeholder pressure enhances/diminishes the relationship between technology orientation and the pursuit of a PES, no significant result was found. Thus, H2a to H2c and H2c-alt are not supported. Repeating the hierarchical regression analysis with a strategic orientation composite of customer, competitor, and technology orientation yielded similar results (Table 3). In Model 3, strategic orientation is significantly associated with the pursuit of a PES (β = 0.250; p = .000). The interaction between strategic orientation and regulatory stakeholder pressure is also significantly connected with the pursuit of a PES, as shown in Model 4 (β = −0.115; p = .030).

Table 3.

Regression Analysis With an Aggregate Measure of Strategic Orientation.

Dependent Variable: Proactive Environmental Strategy
	Model 1	Model 2	Model 3	Model 4
Step 1: Control variables
Firm age	−0.003	0.000	0.008	0.010
Firm size^a	−0.091	−0.108^†	−0.106	−0.112^†
Governmental relations	0.108^†	0.073	0.071	0.086
Business segment	0.021	0.028	0.016	0.017
Public utility	−0.088	−0.042	−0.052	−0.063
Innovation	0.054	−0.044	−0.038	−0.033
Step 2: Independent variables
Strategic orientation		0.253***	0.250***	0.233***
Step 3: Moderator variable
Regulatory stakeholder pressure			0.044	0.036
Step 4: Interaction variables
Strategic orientation × regulatory stakeholder pressure				−0.115*
F	1.720	4.230***	3.770***	3.920***
Adjusted R²	0.012	0.061	0.060	0.094
Change in adjusted R²		0.049***	−0.001	0.034*

Note. Standardized variables for interaction terms. Beta coefficients of the linear regression analysis are reported.

Natural logarithm of number of employees.

†

Significant at 10%. *Significant at 5%. **Significant at 1%. ***Significant at 0.1% (n = 349).

The plots of the interaction terms of customer and competitor orientation with regulatory stakeholder pressure support our findings and illustrate the nature of the moderation (Figures 2 and 3). Figures 2 and 3 show that the relationships of customer and competitor orientation with the pursuit of a PES differ significantly according to the perceived level of pressure exerted by stakeholders within the regulatory context. Following Cohen, Cohen, West, and Aiken (2003), we conducted simple slope analyses to test for the significance of the relationship between strategic orientation and PES at different levels of regulatory stakeholder pressure. We used one standard deviation (1 SD) above and below the moderator to visualize the interaction effect (Cohen et al., 2003). The results for the customer and competitor orientations reveal that both orientations are only associated with the pursuit of a PES when perceived regulatory stakeholder pressure is low (b = 0.12, p = .006; b = 0.11, p = .008). Under high levels of perceived regulatory stakeholder pressure, customer and competitor orientation are not significantly related to the pursuit of a PES (b = 0.000, p = .992; b = 0.00, p = .992). Thus, the relationships of these strategic orientation are not only lowered but become nonsignificant if a firm’s management perceives high regulatory stakeholder pressure.

Discussion

In view of the importance of the regulatory context in firms’ environmental management, we take the contingent RBV (Aragón-Correa & Sharma, 2003) to examine two competing theoretical perspectives of the contextual role of regulatory stakeholder pressure. The enhancing and buffering perspectives provide opposing explanations for how regulatory stakeholder pressure moderates the relationship between strategic orientation and the pursuit of a PES. Our empirical analysis shows that strong perceived regulatory stakeholder pressure weakens the relationship between strategic orientation and the pursuit of a PES. Thus, our results provide some guidance for future research in pointing to a flipside of regulatory stakeholder pressure—namely, the buffering perspective.

Taking a closer look at the detected interaction effects, simple slope analyses and interaction plots reveal that if perceived regulatory stakeholder pressure is high, the relationships between customer/competitor orientation and the pursuit of a PES disappear. Thus, our moderator analysis indicates that pressure exerted by the regulatory context not only weakens but also eliminates the relationship of customer and competitor orientation to the pursuit of a PES. Within a context in which regulatory stakeholder pressure is perceived as high, limited decision autonomy, lack of clarity regarding decisions’ consequences, and a high number of diverging stakeholder demands create an unfavorable environment for strategically oriented firms to make use of their resources in the pursuit of a PES. These arguments and empirical results mirror the findings of Martinez-del-Rio and colleagues (2015), who show that the relationship between organizational characteristics and the pursuit of a PES is strengthened when managers perceive the firm to be operating in a munificent business environment that allows for discretion.

By analyzing the moderating role of perceived regulatory stakeholder pressure on the internal organizational processes supporting firms in following a PES, our study contributes to the environmental management and regulatory literature in several ways. First, analyzing regulatory stakeholder pressure and its interplay with firms’ strategic orientation in the pursuit of a PES from a contingent RBV perspective allows for a new and more distinctive integrative lens. We add to the previous environmental management research on the role of regulatory stakeholder pressure (e.g., Darnall, 2006; Delmas & Toffel, 2008; Menguc et al., 2010) by theoretically examining the influence of opposing—that is, enhancing and buffering—conditions of the external business environment on the relationship between organizational characteristics and PES. In lending support to the buffering perspective, our empirical results hint at a previously unobserved flipside of regulatory stakeholder pressure.

Thereby, we also extend the field of regulatory research, which has addressed the question of how regulatory legislation relates to organizational outcomes. Jaffe and Palmer (1997), for instance, found little empirical evidence for Porter’s (1991) hypothesis that stringency of environmental regulation triggers innovation. A framework proposed by Rugman and Verbeke (1998) conceptualized the relationship between different types of environmental regulations and firms’ choice of environmental strategy. Triebswetter and Hitchens (2005) failed to uncover an impact of the stringency of environmental regulations on firms’ competitiveness in Germany. Our findings may point to an opportunity to take a different angle, namely a contingent perspective that proposes a moderating role of the regulatory context.

Through our study, we demonstrate that the contingent RBV framework proposed by Aragón-Correa and Sharma (2003) offers a systematic understanding of boundary effects. Thus, the contingent RBV could be valuable for future research on the moderating role of (perceived) legislative context in organizational processes. Additionally, we show that the contingent RBV might not only explain the contingent role of general business environment characteristics (e.g., Martinez-del-Rio et al., 2015; Sharma et al., 2007) but could also apply to specific stakeholder influences or other institutional pressures. Hence, our research extends the literature on the organization-environment interface and supplements recent efforts to provide empirical evidence for the theoretical contingent RBV framework developed by Aragón-Correa and Sharma (2003; e.g., Martinez-del-Rio et al., 2015; Sharma et al., 2007).

Second, our findings underline the importance of managers’ perception of pressure stemming from the general business environment, adding to other studies that emphasize the role of managers’ receptivity to stakeholder pressure (e.g., Delmas & Toffel, 2004; Sharma & Henriques, 2005). This corroborates the contingent RBV of the firm and adds to our understanding of why two separate firms with similar organizational characteristics might develop different environmental strategies.

In case of highly perceived regulatory stakeholder pressure, managers of strategically oriented firms might expect turning the pursuit of a PES into a competitive advantage to be difficult. Instead, they may attribute more importance to sustaining their legitimacy with regulatory stakeholders, since exhibiting nonconformity can seriously endanger viability (DiMaggio & Powell, 1983; Kassinis & Vafeas, 2006). The conditional effect of the business environment indicates that, in the case of high regulatory stakeholder pressure, firms’ self-driven motivation to achieve a competitive advantage is crowded out by an external intervention, similar to the effects predicted by motivational crowding theory (Frey & Oberholzer-Gee, 1997). Hence, the intrinsic motivation of a strategically oriented firm’s management to follow a PES to gain a competitive advantage is, to a certain extent, weakened by the firm’s extrinsic need to align with its regulatory context to gain legitimacy. Thus, our results might point to an opportunity for the regulatory literature to more closely consider subjective or perceived regulatory pressure in addition to the objective strength or type of regulation. The work of López-Gamero and colleagues (2010) supports our findings by providing the first evidence of how the dual consideration of subjective and objective measures adds to our knowledge on the impact of environmental policies.

Our results have several implications for future research on PESs. First, this study illustrates the complexity of regulatory frameworks. While regulatory stakeholder pressure might push some firms toward the adoption of an environmental strategy (Darnall, 2006; Sharma et al., 2007), it might undermine prospector firms’ use of their resources, processes, and routines to take a proactive approach toward environmental issues. Although we observed a buffering moderating effect of perceived regulatory stakeholder pressure, we acknowledge that regulatory forces cannot be assumed to have a negative effect on firms’ environmental management per se. Pressure from the regulatory context might still cause reactive or defensive firms to undertake environmental management, as shown by Murillo-Luna and colleagues (2008). Nevertheless, we suggest that future research should take a more nuanced view of the regulatory–environmental management debate.

The past literature has mostly been focused on how to induce or pressure firms to adopt appropriate environmental practices (e.g., Darnall et al., 2010; Davidson & Worrell, 2001; Kassins & Vafeas, 2006). Future efforts should include the question of what happens to those firms that choose to behave in an environmentally friendly manner even in the absence of regulation. We encourage future environmental management research to take a closer look at the double-edged sword of the regulatory context.

Second, while we found broad empirical support for theoretical assumptions concerning the buffering perspective, the contextual role of regulatory stakeholder pressure cannot be confirmed in terms of the relationship between technology orientation and the pursuit of a PES. Although the enhancing and buffering perspectives predict mutually exclusive organizational behavior, in the case of technology-oriented firms, some submechanisms might overlap and potentially neutralize one another. This may be particularly true for a high technology orientation, which implies a substantial investment in maintaining the ability to acquire technological know-how and in advancing technological products and processes (Aragón-Correa, 1998). From the enhancing perspective, more stringent governmental regulations might induce firms to continue pursuing a PES in a bid to reduce the risk of unforeseen refitting costs (Bansal & Roth, 2000), and such firms may even seek to prevent stricter environmental legislation (Decker, 2005; Delmas & Toffel, 2008; Maxwell & Decker, 2006). From the buffering perspective, realizing a continuous competitive advantage from technological know-how is difficult in the presence of high environmental standards. Thus, whether managers’ perception of regulatory stakeholder pressure influences the association between firms’ technology orientation and the pursuit of a PES might depend on the firms’ financial slack and decreasing marginal returns. To a certain extent, firms might aim to deter rigorous legislation when they perceive regulatory stakeholder pressure to be high. However, when financial slack is limited and regulatory stakeholder pressure produces high standards with regards to environmental practices in the industry, technology-oriented firms might not view pursuing a PES as a promising way to differentiate from competitors. Some technology-oriented firms might expect that decreasing marginal returns would obscure the possibility of realizing a competitive advantage through the pursuit of a PES. These reverse considerations could explain why we did not empirically detect a moderating effect of perceived regulatory pressure on the link between technology orientation and the pursuit of a PES. Thus, it might be worthwhile to expand research on the reciprocal relationships between business and the regulatory context (e.g., Baysinger, 1984; Bonardi & Keim, 2005) in the environmental management literature.

Third, in contrast to previous research (e.g., Darnall et al., 2010; Delmas & Toffel, 2008), our findings do not show a significant direct relationship between regulatory stakeholder pressure and the pursuit of a PES. This divergence in results might reflect a change in environmental attitudes. Environmental issues have gained prominence as investors and customers are increasingly rewarding firms for responsible behavior regarding the environment (Flammer, 2013). Hence, our results might indicate that it is not the external pressure, but rather the strategic value, that leads managers to engage in a PES (see positive coefficient of strategic orientation, Table 3). Although the managers in our sample do perceive external pressure from regulatory stakeholders (mean score of 3.42, Table 1), this did not seem to evoke proactive attitudes and behaviors.

Additionally, previous research findings show that the influence of the regulatory set-up depends on the type of regulation in place. Voluntary norms rather than command-and-control regulatory systems were found to be positively related with the pursuit of a PES (López-Gamero et al., 2010). As the German environmental regulatory framework is dominated by technology-requiring regulations and standards (Organization for Economic Co-operation and Development [OECD], 2012), managers’ perception of regulatory stakeholder pressure might not lead to the pursuit of a PES in our sample. We have to note that the above interpretations of a nonsignificant effect must be treated with great caution, as a nonsignificant effect does not prove that the effect does not exist (Cashen & Geiger, 2004). Countervailing mechanisms might have caused our finding.

Nevertheless, our results prompt future research in the environmental management field to disentangle the objective effects of regulations from the subjective perception of them. Such research could reveal how managerial perception mediates the effect of regulation on the environmental decision-making process. Additionally, the flipside of regulatory stakeholder pressure as a buffering condition, might at first glance be viewed as very specific to the German context. The potential boundary role of the regulatory framework is, however, valuable for future research, as it reveals potential unwanted side-effects of policy making. Thus, future research on this issue would generate knowledge about how environmental policies could be shaped more effectively to increase firms’ engagement in proactive environmental behavior.

Limitations and Practical Implications

As with all studies, there are limitations to our approach that must be addressed and provide grounds for future research. First, the cross-sectional design of the study requires a cautious interpretation of the results, as it is not possible to discern causality among our hypothesized relationships. While we believe that our survey study significantly improves the understanding of the contingencies regarding the link between strategic orientation and the pursuit of a PES, additional longitudinal studies would be useful. By looking at longitudinal data, future studies could investigate how changes in the regulatory context affect the role of a firm’s strategic orientation in managerial decision making concerning environmental issues. Thereby, the environmental management field could gain insight into how managers adapt their environmental strategy to the dynamics of the general business environment, which is key to the contingent RBV.

Second, our study has investigated contextual influences via a moderated multiple regression. Although this is an appropriate and accepted method for analyzing contingencies (e.g., Darnall et al., 2010; Rueda-Manzanares et al., 2008), the use of an experimental research design in future research would enhance our causal understanding of how managerial decision making concerning PES relates to managers’ perception of the general business environment. Following the contingent RBV, different experimental conditions could be used to address the characteristics of a business environment: uncertainty, complexity, and munificence (Aragón-Correa & Sharma, 2003; Dess & Beard, 1984).

Third, following Slater et al. (2006), we could interpret a firm’s strategic orientation to be a moderator. Hence, the association between regulatory stakeholder pressure and the pursuit of PES would depend on a firm’s strategic orientation. More precisely, when a firm is highly strategically oriented, regulatory stakeholder pressure would not be related to the pursuit of a PES.² However, for firms whose strategic orientation is low, regulatory stakeholder pressure would indeed be associated with the pursuit of a PES.³ We acknowledge that this alternative interpretation of the interaction between strategic orientation and regulatory stakeholder is possible. Since there is no definite empirical solution to what moderates what, we find a more solid theoretical reasoning in Aragón-Correa and Sharma’s (2003) contingent RBV for our choice of model. Moreover, we see much value in placing the role of regulatory stakeholder pressure at the fore, as the regulatory framework and how it is perceived play a very crucial role in environmental management (Banerjee, 2001; Henriques & Sadorsky, 1996, 1999). We believe that the regulatory context has been underrepresented in contextualizing firms’ internal drivers of PES.

Fourth, we focused our analysis on stakeholder pressures in the regulatory context because this stakeholder groups is highly crucial to environmental management (Banerjee, 2001; Henriques & Sadorsky, 1999). It would be worthwhile to expand the analysis to pressures arising from other market and nonmarket constituents, such as the media, industry, or trade associations (Buysee & Verbeke, 2003; Doh & Guay, 2006).

Fifth, our sample might be particular in two respects: Sampled firms operate in the energy sector and the majority is engaged in renewable energies. Thus, the sampled firms act in a more highly regulated business environment and firms might show a greater attention to natural environment than firms in other sectors (see method section). Both aspects could influence the generalizability of our results. To receive a tentative idea if this is an issue to our analyses, we repeated our analysis without the most regulated firms, namely public utilities. Results on the crowding-out effect remain consistent, backing up our findings.

Since renewable energy firms tend to be younger, we included a control variable for age which has a nonsignificant effect. Following these tests, the sample seems to allow for a cautious interpretation of our results. However, issues of generalizability remain and future studies should include other, less regulated industries to add to our understanding.

Sixth, our study relies on self-reported data from one person per firm. To account for this issue, we distributed a second questionnaire to some of the responding firms. The high consistency values between the first and second respondents lend support to the validity and reliability of our findings and reduce the risk of single-respondent bias. Nevertheless, we see theoretical value in including multiple perspectives in the analysis of a PES.

With regard to practical implications, the contributions of our study are twofold. First, if managers’ perceptions of the influence of stakeholders in the regulatory context play such an important role in firms’ stance on environmental issues, policy makers may be advised to improve transparency in the legislative process and the resulting regulations. Flexibility and clarity might help policy makers increase efficiency in enacting policy, as well as the effectiveness of regulations for promoting the use of advanced environmental management practices in firms (Engau & Hoffmann, 2009). In light of Germany’s ambitious climate targets, improved incentivization of economic participants is one of the cornerstones of the energy transition. In sum, the continuously tightening regulatory framework seen worldwide with regard to environmental issues underlines the need for researchers, managers and policy makers to improve their understanding of how external constraints affect the internal processes that induce organizations to pursue a PES.

Second, a clear understanding of the factors that influence managerial decision making in strategically oriented firms is crucial for policy makers, as those firms might serve as benchmarks for other market players (Narver & Slater, 1990). Knowing that flagship organizations might lose their self-driven approach to environmental issues due to perceived pressure might cause policy makers rethink policy design. Policies that emphasize moving toward the desired behavior rather than command-and-control approaches could provide more flexibility and thereby increase managerial discretion in strategic decision making. This could be beneficial for both business and legislative performance contributing to the solution of global environmental issues.

Footnotes

Appendix

Measurements.

Proactive Environmental Strategy
Pollution prevention
Please indicate to what extent you agree with the following statement concerning your firm’s approach. (1 = do not agree at all to 5 = strongly agree)
Our firm streamlines production processes to prevent firm processes from impacting the natural environment.
Our firm reduces waste on the basis of an environmental management system.
Our firm applies resource recycling to prevent firm processes from impacting the natural environment. (Bansal, 2005; Chan, 2005; Sharma & Vredenburg, 1998)
Top management support
Please indicate to what extent you agree with the following statement concerning your firm’s environmental awareness. (1 = do not agree at all to 5 = strongly agree)
Environmental management is positively related to efficient resource utilization
Environmental management is positively related to cost efficiency
Environmental management is positively related to market competitiveness. (Wagner & Schaltegger, 2004)
Strategic Orientations
Customer orientation
Please indicate to what extent you agree with the following statement concerning your firm’s customer orientation. (1 = do not agree at all to 5 = strongly agree)
Our firm is proactive in collecting information on customers’ needs.
Our firm possesses the capacity to analyze this information.
Our firm has the will to meet the needs of the customers. (Gatignon & Xuereb, 1997; Narver & Slater, 1990; Zhou & Li, 2010)
Competitor orientation
Please indicate to what extent you agree with the following statement concerning your firm’s competitor orientation. (1 = do not agree at all to 5 = strongly agree)
Our firm is proactive in identifying competitor activity.
Our firm possesses the capacity to react to competitor activity.
Our firm has the will to respond to competitor activity. (Gatignon & Xuereb, 1997; Narver & Slater, 1990; Zhou & Li, 2010)
Technology orientation
Please indicate to what extent you agree with the following statement concerning your firm’s technology orientation. (1 = do not agree at all to 5 = strongly agree)
Our firm uses sophisticated technologies in new product development.
Our firm rapidly integrates new technologies into products and processes.
Our firm is proactive in developing new technologies.
Our firm is proactive in developing product ideas. (Gatignon & Xuereb, 1997; Zhou & Li, 2010)
Regulatory Stakeholder Pressure
In the context of the renewable energy sector, please rate the importance of the following sources of pressure on your company (1 = not at all intensive to 5 = very intensive)
Regulations
Politics
Lobby groups (Buysse & Verbeke, 2003; Delmas & Toffel, 2008; Henriques & Sadorsky, 1996)

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

Author Biographies

Eva Alexandra Schmitz is a doctoral candidate at Paderborn University, Germany. Her research mainly focuses on environmental sustainability, corporate social responsibility and entrepreneurship.

Matthias Baum, PhD, is a professor of Entrepreneurship at Technische Universität Kaiserslautern,Germany. His research mainly focuses on the intersection between firm strategies, entrepreneurship, internationalization and human resource management.

Pascal Huett is a manager in the energy sector.

Ruediger Kabst, PhD, is a professor of International Busines at Paderborn University, Germany. His research mainly focusses on human resources, international business, entrepreneurship and innovation.

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