The effect of firm size, asset ownership, and market prices on regulatory violations

Abstract An individual's temptation to violate regulations for personal gain increases with the economic payoff to do so. Firms, however, adopt strategies to reduce undesirable behavior from their employees. This article examines how individuals change their propensity to violate regulations as the price for their services varies. We posit that individuals will commit more intentional, but not unintentional, violations as the payoff to do so increases, and that this effect will be moderated by the size of the firm for whom he or she works and whether the firm or the individual owns the assets used for production. To test our hypotheses, we link data from millions of inspections of truck driver logbooks with spot market prices observed over the same 4‐year period. We find that drivers who operate independently intentionally violate restrictions on their work hours more frequently when prices increase—violating 34% more frequently when prices are at their highest versus lowest—but larger firms and the firm's ownership of the assets reduce a driver's responsiveness to price changes. At the extreme, drivers for large asset‐owning firms are completely unresponsive to prices. Asset‐owning drivers are responsive to market prices, even for the largest firms.