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October 4 Practice Job Talk: Yilang Feng

Regulatory Arbitrage and Overseas Operation of Multinational Firms
Yilang Feng

How does a firm’s global production affect its political strategy to shape its home country regulatory policies? This question lies at the intersection of globalization and corporate political actions, and it is becoming increasingly relevant today with nationalist discontent challenging the global order. To address this question, I develop a theory of regulatory arbitrage: in response to unfavorable regulatory outcomes at home, it is easier for firms with overseas operations to offshore more of their domestic operations abroad, resulting in an outflow of capital and jobs from the home country. Such real options to shift production across jurisdictions serve as an advantageous bargaining position for internationalized US firms in the lobbying process. To test it, I first demonstrate qualitative evidence with large-scale text data extracted from a novel repository of firm public statements in the media. Then I construct a 2007-2016 panel to show that US firms with overseas operations in the same sector are substantially more active in lobbying on US domestic regulations. These results suggest that international pressure for national regulatory change (e.g., “race to the bottom/top”) can also take place at the firm level, where firms’ global expansions give strength to their domestic political actions.