Publication
In 2005, the Economist Intelligence Unit conducted a survey with Chief Risk Officers worldwide across all industries and asked about the biggest threat to their businesses. Interestingly, regulatory risk ranked first. It dominated all other types of risk, be it related to reputation, IT, country, market, terrorism or many other causes (Economist, 2005). Apparently, uncertainty related to regulation is difficult for firms to accommodate and significantly influences business decisions. The motivation of the thesis is to shed light on the question of how firms cope with regulatory uncertainty. Furthermore, I want to explore whether this uncertainty is influencing investment decisions since these are key business decisions. To mitigate regulatory uncertainty a firm may address the nonmarket environment and try to influence policy-makers or regulatory authorities to drive policies and decisions in the desired way. Certainly, some firms may be more successful than others in doing so. Therefore, I argue that there is a set of different capabilities that are driving the effectiveness of these "nonmarket strategies" that allow the firms to mitigate risk from regulatory uncertainty. The thesis hence contributes to management literature about nonmarket strategies. I propose a set of capabilities that considers two different sources of value creation through nonmarket strategies. First, firms can create value from their nonmarket strategy by influencing the firm's non-business environment including policy-makers and regulators. Capabilities can be developed to shape policies, to influence regulatory decisions or to change regulatory institutions. I refer to these as "nonmarket capabilities". They help to mitigate the risk from regulatory uncertainty. My main hypothesis is that firms with stronger nonmarket capabilities are less likely to withhold investment because of regulatory uncertainty. Second, firms may also create value from their nonmarket strategy by organizational adaptation or exploitation of business opportunities that result from regulatory changes. I refer to the capabilities that help firms reach the aforementioned goals as "organizational capabilities". They capture the value of the firm's nonmarket action. Both nonmarket and organizational capabilities are analyzed empirically. The empirical analysis that was carried out in the liberalized European electricity generation market is twofold. First, interviews were conducted in the Swiss markets with the largest players. The results showed a high perceived regulatory uncertainty among the players, but with no indication that investment in generation capacity would be withheld. Investment delays are reported as well as a possible shift of upcoming investments to the bordering EU countries. The analysis of the interviews validates my proposed model since both nonmarket and organizational capabilities are developed by the Swiss players. Second, a survey was conducted into the European electricity