Testing the Assumptions of History‐Dependent Approaches to Regulation: Comparing Compliant Companies With Those That Transgress

Abstract

Risk‐based approaches to regulatory governance are ubiquitous. One aspect of such approaches suggests regulators direct their attention towards companies that have already violated regulations. However, such approaches have made little use of available data to explore these companies, especially compared to companies that do not transgress. This article represents a first step towards informing regulatory practice with an analysis of such data, examining whether companies that violate environmental regulations both once and multiple times can be distinguished from companies that have remained compliant. Companies pursued by the Environment Agency for England and Wales between 2010 and 2021, including both one‐time violators (n = 445) and repeat violators (n = 1826) were compared with companies with no record of environmental violations (n = 4500). The results of the multinomial logistic regression suggested that increases in the log of current liabilities and return on equity were associated with an increased likelihood of being both a one‐time and repeat violator, while decreases in return on capital employed and the logs of assets and net income were associated with the same. Finally, utilities companies were associated with an increased likelihood of being a repeat violator. The results have implications for where environmental regulators should direct their efforts. Financial difficulties in particular may serve to be an important indicator of whether a company may be at risk of violating environmental regulations.