Correlation between regulatory compliance and market volume
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Summary
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Some studies suggest regulatory compliance negatively impacts small firms' market volume, while other studies suggest it positively correlates with market performance in certain contexts like Green Supply Chain Management.
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Correlation Between Regulatory Compliance and Market Volume
Regulatory Compliance and Market Power
Impact on Market Concentration and Firm Size
Regulatory compliance has a significant impact on market power and industry concentration. A comprehensive study examining regulatory costs from 1970 to 2018 found that increased regulatory costs have led to a $1 trillion rise in compliance expenses. This increase in regulatory costs has different effects on small and large firms. For small firms, higher regulatory costs result in lower sales, employment, markups, and profitability. Conversely, large firms experience higher sales, employment, markups, and profitability under the same conditions.
Political Economy of Rulemaking
The study also highlights the political dynamics behind regulatory rulemaking. Large firms, while generally opposed to regulations, often support regulations that disproportionately affect small firms. This strategic behavior by large firms contributes to increased market concentration and reduced competition, as small firms struggle to bear the higher compliance costs.
Regulatory Compliance and Market Performance in MSMEs
Green Supply Chain Management and Consumer Awareness
In the context of Micro, Small, and Medium-Sized Enterprises (MSMEs) in Indonesia, regulatory compliance plays a crucial role in market performance. A study involving 350 business owners revealed that regulatory compliance, along with Green Supply Chain Management (GSCM) practices and consumer awareness, significantly enhances market performance. The findings indicate a strong positive correlation between these factors, suggesting that sustainable business practices and adherence to regulations can improve the competitiveness of MSMEs in the marketplace.
Implications for Policymakers and Practitioners
For policymakers and practitioners, these insights underscore the importance of promoting environmentally conscious corporate practices and ensuring that regulatory frameworks support the growth and competitiveness of MSMEs. By fostering a regulatory environment that balances compliance costs and market performance, policymakers can help MSMEs thrive while maintaining sustainable business practices.
Conclusion
The correlation between regulatory compliance and market volume is multifaceted. Increased regulatory costs tend to benefit large firms while disadvantaging small firms, leading to higher market concentration and reduced competition. In contrast, for MSMEs, regulatory compliance combined with sustainable practices and consumer awareness can significantly enhance market performance. Policymakers must consider these dynamics to create a balanced regulatory environment that supports both large and small enterprises, fostering a competitive and sustainable market landscape.
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