Copyright 2012 by Shon R.

Hiatt and Sangchan Park

Working papers are in draft form. This working paper is distributed for purposes of comment and
discussion only. It may not be reproduced without permission of the copyright holder. Copies of working
papers are available from the author.


Lords of the Harvest:
Third-Party Signaling and
Regulatory Approval of
Genetically Modified
Organisms

Shon R. Hiatt
Sangchan Park



Working Paper

12-081

March 12, 2012



2

LORDS OF THE HARVEST: THIRD-PARTY SIGNALING AND REGULATORY
APPROVAL OF GENETICALLY MODIFIED ORGANISMS

Abstract

Little is known about the factors that influence regulatory agencies decision making. We posit
that regulatory agencies are influenced by the firms they regulate, but not exclusively via
political influence as is argued in the traditional regulatory-capture literatures. Instead, regulatory
decisions are indirectly shaped via third-party actors whose signals reduce uncertainty in the
agencys pursuit of legitimacy. Focusing empirically on the U.S. Department of Agricultures
approval of genetically modified organisms (GMOs), we find that signals from salient
stakeholders and peer agencies have a positive influence on product approval and that their
effects vary under different dimensions of uncertainty. We also discuss the implications of these
findings for businessgovernment relations and for nonmarket strategy.


3

Government is relevant to virtually every business sector, but regulated industries like
biotechnology, telecommunications, electricity, and pharmaceuticals are particularly subject to
state intervention. In such industries, government can dramatically influence firm performance
and survival via regulatory approvals or disapprovals of product and service offerings, product
standards and production requirements, and market entry and exit rules (Sine, Haveman, &
Tolbert, 2005; Garcia-Canal & Guillen, 2008). Theory and research on businessgovernment
relations have postulated that firms in regulated sectors have strong incentives to influence
public policy outcomes, and have examined various strategic efforts on the part of regulated
firms to do so (Keim & Zeithaml, 1986; Hillman & Hitt, 1999).
Fundamental to this prior research, and in particular to the work in economics and
political science, is the view that an organizations political environment can be characterized as
a marketplace in which policy demanders and policy suppliers transact over regulatory decisions
(Hillman & Keim, 1995; Bonardi, Hillman, & Keim, 2005). For example, elected politicians
shape regulatory policy in exchange for resources from organized interest groups in order to
remain in office, a concept often called regulatory capture (Buchanan & Tullock, 1962; Stigler,
1971). This interpretation of regulatory decision making has focused almost exclusively,
however, on individual legislators as targets of influence and on industry-level regulatory
outcomes (Dal Bo, 2006; Trumbull, forthcoming). Thus our understanding is limited to the
macro-level influences of public policy on entire industries; very little is known about why some
firms are able to gain regulatory advantages while others in the same environment are not. Also,
a narrow focus on policy making by elected legislators has led to relative neglect of policy
implementation by regulatory agencies (Bonardi et al., 2005)a serious omission, in that
regulatory agencies have more contact with businesses than legislators do, via day-to-day


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interpretation and execution of laws. We still have very partial understanding of the behavior of
government agencies in businessgovernment relations research, and in particular of their impact
on firm performance (Holburn & Vanden Bergh, 2002).
This paper seeks to remedy this situation by putting regulatory agencies on center stage.
We view regulatory agencies as social actors striving to protect their own legitimacy for securing
interests, autonomy and access to resources (Pfeffer & Salancik, 1978; Suchman, 1995; Skocpol,
1985; Weber, 1978; King, Felin, & Whetten, 2010). Legitimacy is a precious asset for almost all
organizations (Deephouse & Suchman, 2008), but it is particularly critical for regulatory
agencies given their high dependence on external resources and support from audiences
(Carpenter, 2001). The legitimacy of regulatory activities can rest on different dimensions of
social evaluation (Suchman, 1995). Thus we introduce a framework that differentiates between
two dimensions of legitimacy assessmentsconsequences (the achievement of particular goals
valued by audiences) and procedures (adherence to accepted rules of proper behavior). Our
central argument is that regulatory agencies face uncertainties in their efforts to maintain
consequential and procedural legitimacy and thus seek additional information from external
sources to reduce them. In particular, we focus on third-party actors as external sources of
information and examine the various mechanisms by which they help agencies to reduce
different dimensions of uncertainty and shape regulatory decisions.
The context of our study is regulatory approval of genetically modified organisms
(GMOs) by the U.S. Department of Agriculture (USDA) between 1992 and 2007. Like many
other government agencies, the USDA contends with two dimensions of uncertainty in its pursuit
of legitimacy. The first, which we call consequential uncertainty, has to do with the difficulty of
anticipating how the consequences of the agencys approval decisions will be evaluated by its


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audiences. The second, which we call procedural uncertainty, has to do with the difficulty of
addressing safety issues via the formal procedures of acquiring and processing scientific
information about new GMOs. Since these uncertainties, if unresolved, can undermine
legitimacy assessments, the USDA strives to reduce them by seeking additional information
from third-party actors such as salient stakeholders and peer agencies. In this context, we
differentiate the underlying mechanisms whereby the respective third-party actors indirectly
influence agency product-approval decisions.
Our paper contributes to the businessgovernment relations literature both by putting the
underexplored role of regulatory agencies at center stage and by enriching the prevailing
simplistic imagery of regulators as discrete economic actors. Prior research on business
government relations has focused on political influence in market-like dyadic interactions
between policy makers and regulated firms and neglected legitimacy, uncertainty, and social
influence, all widely acknowledged as fundamental characteristics of almost every decision
context (Suchman, 1995; Pollock & Rindova, 2003; Pollock, Rindova, & Maggitti, 2008). We
describe regulatory agencies as social actors embedded in triadic regulatory relationships, and
suggest that the presence of uncertainty and legitimacy concerns motivates them to look to third-
party actors for additional useful information. Insofar as such third parties are propelled into
action by regulated firms, this paper suggests that regulatory agencies are influenced by the firms
they regulate but not exclusively via the direct political influence described by the traditional
regulatory-capture literatures (Dal Bo, 2006; Trumbull, forthcoming). Instead, regulatory
decisions are indirectly shaped via third-party actors that reduce the legitimacy uncertainties of
regulatory agencies.
The next section will describe the context of this study: the process of regulatory


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approval of GMOs in the agribusiness market. The paper then explores how regulatory agencies
rely on signals from stakeholders to reduce consequential uncertainty, and on signals from peer
agencies to reduce procedural uncertainty. The paper will then distinguish the mechanisms
underlying third-party influence by analyzing how the signaling effects of agency stakeholders
and peer agencies are contingent on indicators of consequential and procedural uncertainty at the
product, firm, and environmental level.

RESEARCH SETTING: APPROVAL OF GENETICALLY MODIFIED ORGANISMS
This paper examines the approval of genetically modified plants, or plant organisms
whose genetic material has been altered using genetic-engineering techniques to enhance such
desired traits as herbicide resistance, pesticide properties, and nutritional content. The first
successful genetically modified product to come to market, in 1992, was Calgenes Flavr Savr
tomato, which did not soften or spoil and thus could sit on grocery-store shelves weeks longer
than normal tomatoes. Other agro-chemical and seed companies followed suit with their own
commercial GMOs. Monsanto introduced the first herbicide-resistant plantRoundup Ready
soybeans in 1993. Over the next 12 years, agriculture biotechnology companies
commercialized favorable traits in 19 plant varieties. By the end of 2006, 61 percent of the corn
and 89 percent of the soybeans grown in the United States were GMO varieties, and nearly 70
percent of all supermarket products had some GMO content (IFIC, 2007).
Genetically modified plants are regulated under the Coordinated Framework for the
Regulation of Biotechnology, which governs federal policy on regulating the development and
market introduction of GMOs and on the product-review and approval procedures of involved
agencies. Responsibility for regulatory oversight of GMOs is primarily entrusted to the USDA,


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which is charged with ensuring the environmental safety of GMO crops and approving market
introductions. The Framework also specifies that the Environmental Protection Agency (EPA) is
to supervise approved substances with pesticide properties, and the Food and Drug
Administration (FDA) is to act as an optional consultant to affirm the accuracy of nutritional
labeling on food products that contain GMOs; companies seeking USDA approval of GMOs are
not required to consult the FDA or, if they do so, to follow its recommendations.
The Coordinated Framework for the Regulation of Biotechnology and other relevant laws,
such as the Plant Protection Act, delineate regulatory policy for the USDA and specify formal
review procedures that base regulatory decisions on sound science. When a biotechnology firm
prepares for commercialization of a GMO product, it petitions the USDA for a determination of
deregulated status. The petition for deregulation describes the genetic transformation and its
potential environmental consequences by providing a variety of information, such as the
breeding history of the transgenic plant population; comparisons of growth habits, life spans,
vegetative vigor, and pollen parameters; compatibility with wild species; and the potential
consequences of gene flow to other species. The USDAs Animal and Plant Health Inspection
Service conducts an in-depth scientific assessment to evaluate the validity of the information
provided by the firm and to determine whether the organism can safely be released into the
environment.
These formal procedures are designed to collect scientifically decisive evidence on safety
issues, but even the most rigorous scientific techniques cannot uncover all the potential dangers
of a given product with complete certainty in advance (Conner, Glare, & Nap, 2003). For
example, horizontal transfer of GMO genes with herbicide properties to wild plant varieties
could foster the growth of indestructible weeds that could reduce agricultural yields and even


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wreak havoc on an entire ecological system. Hence USDA scientists cannot hope to specify the
potential impact of GMO genes on every kind of organism (plant, animal, and microbial), or
even on those in close proximity to genetically modified plants (Hails & Morley, 2005). Once
the USDA has sorted through the available information and made a preliminary decision, it
prepares an environmental document for public comment. After considering the comments, it
publishes a response outlining whether it deems the product safe for market. If a product is
approved and later deemed unsafe, the USDA retains the authority to take it off the market.

THEORY AND HYPOTHESES
Legitimacy of Regulatory Agencies
The portrait of regulatory agencies routinely presented by sociologists and institutional
economists is that public agencies do not always regulate markets for the benefit of society at
large; often they pursue their own interests in capturing greater autonomy and resources (North
1990; Skocpol, 1985). In support of this thesis, prior work has shown that regulatory agencies
attempt to maximize their own budgets, expand their workforces, and enhance the career
prospects or political reputations of their directors (Mueller, 2003; Niskanen, 1971; Weatherby,
1971). Though there are many ways in which regulatory agencies can assert themselves, they
often seek to strengthen their autonomy and power by preserving and promoting their intangible
assets. Legitimacy, in particular, can shape the perceptions of legislators, Cabinet members, and
other key resource holders and thus affect an agencys autonomy, discretion, and resource
acquisition (Carpenter, 2001; King et al., 2010; Deephouse & Suchman, 2008).
No federal agency understands the relationship between legitimacy and the pursuit of
autonomy, resources, and responsibility better than the USDA. Since its founding the


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Department has enjoyed an unusual degree of administrative unity and flexibility (Skocpol &
Finegold, 1982: 272). Few subdivisions within the Department were legislatively created by
Congress, and all employees except the top officials are subject to appointment and removal by
the head of the Department the Secretary of Agriculture; consequently, Agricultural Department
Secretaries could shape their agency without pre-approval by Congress. The USDAs autonomy
is largely attributable to its unchallenged legitimacy, carefully fostered by emphasizing its
fidelity to science, precision, conservation, and efficiency since its establishment in 1889 (Gauss
& Wolcott, 1940). For instance, the USDA Office of Experiment Stations has long advocated for
scientific standards, cooperative research, and widespread dissemination of test results in the
spheres of nutritional science, physiology, agricultural chemistry, and other life sciences
(Rothenberg, 2001). Its advocacy of scientific experimentation elicited strong support from
farmers, scientists, policymakers, and such influential groups as the General Federation of
Womens Clubs, the Progressive Party, and, more recently, the Sierra Club. The rewards of
legitimacy are well illustrated by the USDAs takeover of 193 million acres of federal forest
lands in the early twentieth century from the Department of the Interiorone of the oldest and
largest Cabinet departmentswhose legitimacy was damaged by its mishandling of Civil War
veterans pensions and squandering of Reclamation Act monies.
How do regulatory agencies like the USDA protect and promote their legitimacy? We
posit that they strive to do so by issuing decisions that tap into two distinct dimensions of social
evaluations. In an extensive review of legitimacy, Suchman (1995) relates Webers concept
(1978) of rational-legal authority to two different dimensions of legitimacy: consequential and
procedural. Consequential legitimacy flows from the achievement of goals valued by audiences.
For example, social evaluations of hospitals typically reflect their consequential effectiveness for


10

patients, such as low mortality rates. Procedural legitimacy, by contrast, flows from the pursuit
of accepted rules of behavior. For instance, social evaluations of hospitals also reflect whether
they adhere to appropriate procedures and techniques. As Suchman points out (1995: 580), a
hospital will lose procedural legitimacy if it performs exorcismsa methodology regarded as
non-scientific. The distinction between consequential and procedural legitimacy has proven
useful in many settings, such as industry standardization (Jiang & Bansal, 2003), diffusion of
new accounting practices (ODwyer, Owen, & Unerman, 2011), and legitimation of new field-
level actors (Sauder, 2008).
The distinction can also be useful when examining the decisions of regulatory agencies.
Regulatory agencies tend to be evaluated first in terms of consequential effectiveness. Yet, as
Meyer and Rowan (1977: 354) note, the technical properties of outputs are socially defined and
do not exist in some concrete sense that allows them to be empirically discovered. Thus the
consequential legitimacy of an agency cannot always rest on a unanimous normative evaluation
on the part of all its audiences. Instead, the legitimation process is often in the hands of diverse
stakeholdersindividuals and businesses affected by the agencys services, operations, and
functions (Clarkson, 1995; Mitchell, Agle, & Wood, 1997). The USDAs stakeholders, for
example, range from farmers who use its services and are economically affected by its regulatory
decisions to consumer and food-safety organizations that have diffuse interests and less direct
involvement with the Department. USDA decisions that these stakeholders view as appropriate
can serve as a solid basis for consequential legitimacy and thus protect the Departments
autonomy, resources, and responsibility (Delmas & Toffel, 2004).
Regulatory decision-making is also expected to follow formal procedures that embody
socially accepted techniques and procedures. Adhering to such procedures can reinforce


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legitimacy because the proper means and procedures are given a positive moral value (Berger,
Berger, & Kellner, 1973: 53). As noted earlier, federal policy recognizes that GMOs are
developed using a complex set of biotechnological techniques that can undermine environmental
safety; thus scientific methodologies for analyzing the safety issues surrounding GMOs should
be central to the USDAs decision processes. Regulatory rulings founded on these accepted
scientific procedures thus preserve legitimacy.
1

Uncertainty in the Pursuit of Legitimacy
Managing legitimacy is rarely easy (Suchman, 1995), but it is particularly challenging for
regulatory agencies because they are subject to high uncertainty in their pursuit of legitimacy.
Although there are several dimensions of uncertainty (Podolny 1994; Thompson 1967;
Williamson, 1981), we focus on two that correspond to the distinction between consequential
and procedural legitimacy. First, government agencies are subject to consequential uncertainty
that is, the difficulty of anticipating how the consequences of regulatory decisions will be
evaluated by its audiences. Because a regulatory agency typically has numerous stakeholders
with varying values and interests, it is difficult if not impossible to predict how its stakeholders
will perceive and evaluate the consequential effectiveness of regulatory decisions. Anticipating
legitimacy assessments is particularly difficult when stakeholders have incompatible interests
and thus evaluate agency decision making inconsistently.
Second, government agencies are subject to procedural uncertaintythat is, the difficulty
of meeting the procedural requirements for regulatory decisions, such as acquiring and

1
Suchman (1995) links the consequences of organizational activity to several dimensions of legitimacy, including
pragmatic legitimacy and moral legitimacy. Pragmatic legitimacy draws on the self-interested calculations of an
organizations most immediate audiences; moral legitimacy embodies normative evaluations. Suchman treats
consequential legitimacy as a subcategory of moral legitimacy but we view it as an important subcategory of
pragmatic legitimacy as well in the case of government agencies, and use the concept to look at salient stakeholders
who shape evaluations of regulatory agencies.


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processing scientific information about new GMOs. Unlike consequential uncertainty, which is
largely external in nature, procedural uncertainty is internal: it stems from the unknown quality
of the product and thus resides inherently in the agencys decision process. For example, when
the USDA receives a request for approval of a new GMO with unknown characteristics, it must
follow formal procedures to address safety issues. As noted, it is almost impossible to obtain
perfect information with which to analyze all potential dangers and future environmental impacts.
This uncertainty increases the likelihood of approving a dangerous product, which would
significantly undermine the agencys legitimacy.
Hence we posit that regulatory agencies experience a need to reduce uncertainty and have
incentives to seek additional information when making regulatory decisions. When a government
agency cannot clearly anticipate how its consequential effectiveness will be evaluated (high
consequential uncertainty), it will scrutinize stakeholder reactions for more information. If
scientific techniques are still rudimentary, and objective evidence with which to evaluate
environmental safety is not readily available for the product under review (high procedural
uncertainty), the agency will seek more information that can help fulfill the formal requirements
for understanding the products unknown qualities.
As sources of information pertinent to uncertainty reduction, we focus on the signaling
role of third-party actors in the agencys regulatory environment. Organizational scholars have
explained how third-party actors offer a flow of useful and credible information that
organizations use as non-objective cues to better understand the unknown quality of exchange
partners (Podolny, 1994; Stuart et al., 1999). The core of this line of research is the signaling
value of third-party actors under conditions of uncertainty. Consistent with this literature, we
highlight the informational value of third-party actors signals for a regulatory agency


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contending with consequential and procedural uncertainty. We further distinguish among such
third-party actors in order to understand more comprehensively how each employs a different
mechanism of regulatory influence and thus promotes different regulatory decisions. We focus
on salient stakeholders and peer agencies as the most relevant sources of signals.
Consequential uncertainty and signals from salient stakeholders. Stakeholders with
varying interests and degrees of influence participate in legitimacy assessments, making it
difficult for regulatory agencies to anticipate how their decisions will be evaluated. Given high
consequential uncertainty, the agencies have incentives to collect additional information about
their stakeholders. Yet it is nearly impossible to completely sort out all the differences of opinion
and to make regulatory decisions that simultaneously satisfy the interests of all stakeholders.
Thus we suggest that agencies are more likely to selectively focus on stakeholders with the most
immediate interests in the consequence of a given regulatory decision and significant influence
on legitimacy assessments and resource acquisition. Scholars have noted that the stakeholders
that elicit the most forceful organizational response are those that have a claim on the agencys
services, exercise some direct or indirect power over its resources, and are most affected by its
actions (Mitchell et al., 1997; Eesley & Lenox, 2006). The USDAs most salient stakeholders
include farm associations that represent organized farmers.
Farmers and farm associations have been the USDAs most salient stakeholder since
1889, when the Cabinet-level Department of Agriculture was created to replace its precursor
agency, largely in response to the urging of farmers (Gaus, Wolcot, & Lewis, 1940). From the
start, the USDA viewed farmers as one of its key audiences, and reciprocated their support by
serving their interests above those of other stakeholders (Whetten, 2006; King et al., 2010).
During the Great Depression, farm associations established close relationships with the House


14

and Senate agriculture committees; at the same time, according to one scholar, officers of the
Department of Agriculture recognized farm organizations as consultative organs in themselves
and relied on them when crafting and interpreting New Deal farm policy (McConnell, 1953: 75).
During the Second World War, the influence of farm associations was still apparent in the
implementation of agriculture policy, as one historian has noted: Although the national interest
was compromised, the narrow interests of elite farmers were well servedthey made excessive
profits, producing unneeded and expensive goods (Hooks, 1990: 36). Fifty years later, despite
lobbying by a multiplicity of competing groups, farmers and farm associations still remained
salient USDA stakeholders, as one farm-association staffer observed: I think that the USDA
feels that we are important constituents. If we have something to say, they listen. If we are
against something, the USDA tries not to go against what we say. If we are in favor of a policy,
they try to agree with us.
Biotechnology firms meet with agriculture trade associations to discuss farmers needs
and to elicit pre-approval support for new products.
2
If a farm association is convinced that a
new product will improve its members businesses, it may inform its members and advocate for
the products approval. We have an advocacy group that meets with different seed companies,
and we have discussions offline, and they share information with us, explained an employee of
a statewide association of soybean farmers. If the products seem good, we then advocate the
next generation of GMO seeds to be approved. A representative of a different state soybean
association elaborated: Seed companies will invite the corn, soybean, and other association
members to talk about their products in the pipeline, and invite us to support their products. If
their products are not supported by us, it could really hurt them and their chances for approval.

2
Farm associations willingly discussed with us their meetings with biotechnology companies in general, but would
not disclose the content of particular meetings or the particular products discussed.


15

Such product-approval requests from agriculture trade associations can be viewed as
valuable information that the USDA can use to understand the preferences of its most salient
stakeholders as well as the potential costs of delay or disapproval. As noted, farmers are the most
salient of the USDAs stakeholders who can exert immediate influence on Congress and other
politicians to intervene in the Departments operations or to reduce its autonomy and operating
budgets. Insofar as the USDA suffers from high consequential uncertainty due to different and
often conflicting evaluations from its various stakeholders, it may pay particularly close attention
to the signals of farmers. USDA decision reports routinely highlight approval requests received
from farm associations and the Departments alignment with their endorsements. For example,
the USDA reported that farm associations requests for approval of Monsantos corn variety
#863 stressedthe advantages to growers in increased yields and crop quality (APHIS,
2005:1). Thus we hypothesize that signals from farm associations motivate the USDA to decide
in favor of a given product.
Hypothesis 1: Positive signals from salient stakeholders (farm associations) increase the
likelihood of product approval by the USDA.

Procedural uncertainty and signals from peer agencies. The principle of basing
decisions on scientific analysis of information organizes review procedures and serves as a
fundamental criterion for maintaining legitimacy. This principle is particularly important to the
USDA, whose claim to legitimacy has historically rested on its longstanding commitment to
sound scientific practices. But, as noted, it is near-impossible to obtain all the information
needed to completely analyze the possible dangers of a new product in all environments via
review procedures. For this reason, it is not uncommon for agencies to depend on additional
information from external sources when making regulatory decisions (Olson, 1997). Peer
organizations with similar practices and competencies often serve this function: during product


16

review, an agency may look to peer agencies that it believes to possess access to pertinent
information and/or pertinent evaluative abilities.
The FDA is the USDAs most prominent peer agency. Arguably one of the most
powerful regulatory agencies in the world, the FDA enjoys sophisticated scientific capabilities to
evaluate the safety of food and drugs (Olson, 1997; Carpenter, 2002, 2004). It regulates all
pharmaceutical and food-processing production in the United States, and has the authority to stop
the sale of any food, drug, or health product; to impose a fine if a food, drug, or health-product
producer violates labeling requirements or sells a product deemed to endanger human health; and
even to shut down such a producers domestic operations (Carpenter, 2002). Given the perceived
authority of the FDAs scientific evaluations of food safety, USDA officials tend to assign high
value to evaluative information from the FDA when reviewing the safety of GMOs.
The FDA does not grant regulatory approval to GMOs, but it can act as an optional
consultant to biotechnology companies on how to design nutritional labels for their
bioengineered products. During the consultation, the biotechnology firm and the FDA meet to
discuss nutritional and other regulatory issues pertaining to the product. The GMO developer
submits a summary of its scientific and regulatory assessment of the food to the FDAs Center
for Food Safety and Applied Nutrition. An FDA biotechnology evaluation team composed of a
consumer-safety officer, a molecular biologist, a chemist, an environmental scientist, a
toxicologist, and a nutritionist reviews the data; additional expertise may be employed on a case-
by-case basis. The company ultimately receives a consultation memorandum or certificate
describing any nutritional labeling issues that have been raised and resolved. A typical
memorandum provides information not only on calories, vitamins, and minerals but also on


17

potential allergens, an important source of safety concerns. A copy of the memorandum is
forwarded to the USDA.
An FDA consultation reduces procedural uncertainty. The information it produces is
relevant to the USDAs review procedures. It confirms the appropriateness of the nutritional
labeling, enhancing the general credibility of the information that the regulated firm provides in
its petitions. It also confers more specific confidence on safety issues like allergens. The USDA
can build on the FDA-certified information in its safety analysis, and can extend it by doing
further evaluative testing to identify other safety issues. The USDA decision report often
includes references to the FDA memorandum and indicates that its review procedures
incorporate FDA-generated information. In short, an FDA consultation increases the likelihood
of USDA product approval by providing positive information that reduces uncertainty in the
review process.
Hypothesis 2: A positive signal from a peer agency (the FDA) increases the likelihood of
product approval by the USDA.

The Contingencies of Third-Party Influences on Regulatory Decision Making
The hypothetical mechanism described above for third-party influence on regulatory
decisions emphasizes the implicit role of uncertainty and legitimacy concerns in motivating a
regulatory agency to look to third-party actors for signals. This section will further strengthen
our argument by examining the contingent value of third-party signals under varying degrees of
uncertainty. If our proposed mechanism actually operates, we should expect that the main effects
will become stronger when uncertainty is heightened. Moreover, because our causal arguments
rest on two dimensions of uncertainty about legitimacy, we expect that the contingency effect of
third-party influence will vary only with the level of consequential or procedural uncertainty.
Here we explore whether the value of stakeholder signals increases with greater consequential


18

uncertainty, and whether that of FDA consultations increases with greater procedural
uncertainty, by focusing on two indicators of consequential uncertainty (congressional electoral
competitiveness and activist protests) and two indicators of procedural uncertainty (foreign
company and technology novelty). Figure 1illustrates the theoretical model embodied in our
arguments.
---Insert Figure 1 about here---
Consequential uncertainty: Congressional electoral competitiveness and collective
protest. Research in political science posits that greater electoral competitiveness of
congressional seats tends to be associated with higher legislative responsiveness to the publics
interests (Hill, Quaile, Leighley, & Andersson, 1995). Congressional electoral competitiveness is
a measure of the closeness of political races between candidates. High electoral competitiveness
exposes federal agencies to greater consequential uncertainty in two ways. First, when electoral
competitiveness is high, politicians become more sensitive to a wider variety of voters who raise
accountability issues (Hill et al., 1995). Accordingly the number of stakeholders an agency must
take into account increases, making it more difficult for the agency to predict how all relevant
stakeholders will assess its effectiveness and thus its legitimacy. Second, high electoral
competiveness can stimulate more active congressional oversight and meddling in agency affairs
(Besley & Burgess, 2002), promulgating the conviction that something must be done (Skocpol
& Finegold, 1982: 277). But because this conviction rarely specifies exactly what should be done,
it is hard to anticipate whether congressional responses will be positive or negative.
Such heightened uncertainty increases the value of signals. When uncertainty about the
consequences of its regulatory rulings rises, an agency has even stronger incentives to understand
the interests of its stakeholders and to predict whether they will welcome its decisions.


19

Accordingly, the agency is likely to depend more heavily on salient stakeholders signals, such
as product-approval requests. If uncertainty is minimal, by contrast, there will be little need to
seek out third-party signals. Hence, the influence of stakeholders signals on agency decision
making will be greater with heightened uncertainty due to high electoral competiveness.
Hypothesis 3: Positive signals from salient stakeholders (farm associations) will have
greater influence on a regulatory agencys (the USDAs) decision making when
congressional electoral competitiveness is high.

Meanwhile, consequential uncertainty is also subject to the degree to which groups and
individuals advocating for the public interest oppose approval of the product under review and
attack the agencys legitimacy. In the case of the agro-biotechnology sector, environmental and
consumer organizations protested against certain GMOs under review. Research on the
interaction of organizations and social movements has found that collective protest can
undermine an agencys legitimacy by drawing public attention to controversies and framing its
decisions as wrong, unethical, and immoral (King, 2008; Hiatt, Sine, & Tolbert, 2009; Weber,
Rao, & Thomas, 2009).
Protests direct activism at the government agency responsible for a given decision; they
also introduce grievances into the public sphere, where activists can garner media attention and
appeal to wider audiences (King & Soule, 2007; Ingram, Yue, & Rao, 2010). And because
protests tend to politicize regulatory decisions and actions, they can make government agencies
appear less independent, professional, and competent (Peretti, 2004). For example, those who
oppose GMO approval often argue that GMOs are environmentally destructive and that the
USDAs eagerness to serve agricultural interests puts public safety in jeopardy (Charles, 2001).
The attention that protests draw to government agencies increases consequential
uncertainty by promoting greater congressional scrutiny of agency actions and by raising the


20

number of vocal, mobilized stakeholders with incompatible interests. The existence of both
mobilized opposition and supporters guarantees that the USDA is exposed to competing
demands and is likely to receive both positive and negative evaluations of its consequential
effectiveness. When legitimacy assessments rest on inconsistent evaluations, it is difficult for a
government agency to anticipate the ramifications of its product-approval decisions. As a result,
consequential uncertainty increases. Exposed to high consequential uncertainty, the agency will
be strongly motivated to reduce its risk of losing legitimacy and resources by turning to the
evaluations of its most salient stakeholders. Therefore, positive signals from farm associations
will have a particularly strong effect on the agencys approval decision when there is heightened
consequential uncertainty due to collective protests.
Hypothesis 4: Positive signals from salient stakeholders (farm associations) will have
greater influence on a regulatory agencys (the USDAs) decision making in the presence
of collective protests.

Procedural uncertainty: Foreign company and technology novelty. Procedural
uncertainty results when a products origins or characteristics impose limits on an agencys
ability to gather and process information on its safety. Foreign biotechnology firms that develop
GMOs in their home countries and then petition the USDA for approval in the United States may
thus tend to face unfavorable decisions, particularly if they develop and test their products under
different regulatory supervision and decision procedures than those of the United States.
Confidence in the ability of foreign regulatory agencies to evaluate food safety has been
eroded by highly publicized food scares in Europe (Jacob & Hellstrom, 2000; Knowles, Moody,
& McEarchen, 2007). In the early 1980s, tens of thousands of people became sick and over 800
people died in Spain from cooking oil contaminated with aniline, a toxic industrial chemical.
Approximately a decade later, British regulatory agencies failed to recognize and contain bovine


21

spongiform encephalopathy mad-cow diseasewhich infected thousands of cattle and
killed nearly 200 people (McNeil, 2006). A few years later, Belgian regulatory agencies were
discovered trying to cover up the leakage of a highly carcinogenic chemical, polychlorinated
dibenzodioxin, into animal feed; over 7 million chickens and 60,000 pigs had to be euthanized.
More recently, a British agency was slow to recognize and report highly infectious foot-and-
mouth disease, which then spread throughout Britain, threatened animals in continental Europe,
and led to the slaughter of over 7 million cattle (Rivers, 2007).
With such failures in mind, the USDA may well believe that GMOs developed and tested
under the auspices of foreign regulatory agencies will be less safe than those developed and
tested under its own scrutiny, and may therefore subject these products to more critical
investigations. On the other hand, positive signals from a prominent peer agency, such as the
FDA, may become more valuable if they provide information on such products. Thus we predict
that a consultation from the FDA will have a stronger positive effect on the USDAs decision
making when the GMO is made by a non-U.S. company.
Hypothesis 5: A positive signal from a peer agency (FDA consultation) will have greater
influence on a regulatory agencys (the USDAs) decision making when the product in
question is made by a non-U.S. company.

Genetically modified organisms characterized by novel components and technologies,
such as new transgenic procedures, are at greater risk in regulatory review processes. First, new
technologies are inherently characterized by lack of information about their quality and relevance.
Second, evaluation procedures have rarely been established for such new technologies.
Regulatory agencies may thus have to develop new and untested evaluation procedures and
techniques, which may lead to unfavorable decisions. Again, positive signals from a peer agency
can become more influential if they serve as reliable supplementary information. Thus we predict


22

that a consultation from the FDA will have a stronger positive effect on the USDAs decision
making when the manufacturer used novel technologies to develop the GMO product under
review.
Hypothesis 6: A positive signal from a peer agency (FDA consultation) will have greater
influence on a regulatory agencys (the USDAs) decision making when the product in
question embodies novel GMO technologies.

METHODS
Data and Measures
This study examines factors in USDA decisions on GMOs. Our sample consists of all
petitions for approval of GMOs between June 1992, when the first such petition was submitted,
and December 31, 2007, the last date for which suitable data are available. During this period,
113 petitions for genetically modified plant products were submitted by 29 companies; 73 (65
percent) gained approval, 28 (24 percent) did not, and 12 (11 percent) were still awaiting a
decision at the end of the study period.
Dependent variable. Our dependent variable is GMO approval events by the USDA. We
used an event-history analysis rather than a logistic analysis because the former maximizes the
use of available information (such as time to approval) and is the standard approach in research
on a similar phenomenon, pharmaceutical approval (Carpenter, 2002). Data on petitions for
approval came from the USDAs Animal and Plant Health Inspection Service. This dataset
contains information on the petitioning firm, the species or crop in question, the date the request
was received by the USDA, the start and end dates of the Federal Register comment period, the
status of the request, whether the application contains confidential business information, and the
phenotype category and genotype (donor and gene designation) of the material in question.


23

Predictor variables. Our predictor variables are positive signals from salient stakeholders
(farm associations) and peer agencies (FDA) prior to a USDA decision. About 34 percent of the
petitions received farm-association endorsements and about 35 percent received a completed
FDA consultation memorandum prior to the USDA decision.
3
To capture signals from farm
associations, we included a count variable (salient-stakeholder signals) equal to the number of
letters the USDA received from farm associations requesting product approval.
4
Each letter
represented a particular farm association. We measured positive signals from a peer agency with
a binary variable indicating whether the product received an FDA memorandum letter (peer-
agency signal). We read all FDA consultation memoranda and found them to consist of a
standard form letter declaring the GMO nutritional labeling acceptable. We obtained information
on farm-association requests and FDA consultations from the USDA and the FDA respectively.
Firm-level control variables. Given that larger firms are likely to command both greater
resources and greater power to affect regulatory decisions (Stigler, 1971; Carpenter, 2004), we
controlled for firm size, defined as number of employees. We also controlled for a firms
technological prestige, using patent-citation relationships (Stuart, 1998). Patent applicants often
list similar prior inventions to demonstrate their own differences. Such a citation implicitly
acknowledges the importance of the cited organizations patent. Thus, firms frequently cited for
their agricultural-biotechnology patents should enjoy higher status in the agricultural-
biotechnology domain. We define technological prestige as

3
We conducted a linear and logistic analysis to determine whether any characteristics of firms or GMOs would
make some more likely than others to garner farm-association support and yo request an FDA consultation. We
found that firms with research sponsorship and whose GMOs employed novel technologies were more likely than
others to garner farm-association support. There were no significant correlations between firm or GMO
characteristics and FDA-consultation requests. These analyses demonstrate that firms with potentially risky
attributes and products are not less likely to mobilize stakeholder and peer-agency support. In order to account for
any unmeasured heterogeneity that could affect a companys decision to seek farm-association and peer-agency
signals, we included firm fixed effects in the analysis.
4
State farm associations representing growers of commodities such as corn, soybeans, potatoes, and wheat often
submit formal requests to the USDA.


24

D
it
=
j
C
jit
/ L
t

where D
it
is the prestige of firm i at time t, C
jit
is coded as 1 when a patent of firm j cites a patent
of firm i during time interval t, and L
t
is the total number of patent citations of all agricultural-
biotechnology firms during interval t. Because product lifecycles in the agricultural-
biotechnology realm are similar to those in the larger biotechnology domain, D
it
was computed
over a five-year moving window (Stuart, 1998).
Companies that develop GMOs outside the purview of the USDA may increase
uncertainty surrounding the products safety. As such, we controlled for whether the petitioning
firm was of non-U.S. origin using a dummy variable (foreign company). Because a
biotechnology companys past approval record can provide information on its ability to produce
products that meet the USDAs requirements, we included the number of GMO petitions that
failed to receive approval (failed petitions). Finally, to control for any unobserved company
characteristics, we included firm fixed effects.
Product-level control variables. When USDA scientists are trying to determine whether a
GMO created from extensively studied technologies presents a hazard to the environment, they
may consult studies of similar gene transformations published in scientific journals. We thus
controlled for both general cumulative scientific evidence of gene transformations (general
knowledge of gene transformations) and scientific knowledge of gene transformations pertaining
to particular product petitions (product-specific knowledge of gene transformations). Using the
Institute for Scientific Informations bibliographic software, we searched for articles in scientific
journals on each gene transformation reported in the 113 petitions. For the general-knowledge
variable, we summed all those articles over time to create a variable that captured all articles
published on a given gene transformation by year (e.g., Agrobacterium-EPSPS). For the product-


25

specific knowledge variable, we summed only those journal articles that discussed both the
particular gene transformation and the particular plant species in question (e.g., Agrobacterium-
EPSPS + Corn).
Because the tenor of journal articles may affect the USDAs decision-making, we
controlled for the tenor of product-specific journal publications using the Janis-Fadner
coefficient of imbalance (Deephouse, 2000; Janis & Fadner, 1965; Pollock & Rindova, 2003).
The measure was calculated using the formula
Tenor = (P
2
-PN)/V
2
if P>N; 0 if P=N; and (PN-N
2
)/V
2
if N>P,
where P is the number of positive articles about a gene transformation of a particular plant, N is
the number of negative articles about it, and V is the total number of articles about it, including
those that are neutral. The range of this variable is -1 to 1 where -1 signifies all-negative
coverage and 1 signifies all-positive coverage. Following previous research (Pollock & Rindova,
2003), each paragraph of a given journal article was coded as positive, negative, or neutral in
tenor. If an article contained relatively equal numbers of positive and negative references to a
gene transformations effectiveness and externalities, it was coded as neutral. One of the authors
and two research assistants coded all 866 product-specific journal publications.
We also controlled for corporate authorship and sponsorship of research studies
supporting GMO approval (journal publications sponsored by firm). Prior research has found
that firms will promote the publishing of their innovations in academic journals to facilitate
assessment by regulatory agencies (Polidoro & Theeke, forthcoming). We identified every
scientific journal article that listed an author from a biotechnology company or referred to
corporate provision of data or project sponsorship. We then summed all sponsored articles on the
product-specific gene transformation whose tenor was positive.


26

The more field tests a firm conducts on a new GMO, the greater the positive effect should
be on USDA approval: the agency will have more information with which to determine
consumer-health and environmental safety. We thus included a variable for the number of field
trials conducted on a GMO (GMO field tests) and another variable for the number of years it was
under examination (GMO testing time). GMOs containing plant-incorporated protectants
(pesticides) must be monitored by the Environmental Protection Agency (EPA) after USDA
approval. The USDAs guide to the petition process (USDA, 1996) states that the EPA does not
review GMOs until after the USDA makes a decision, and in our research we found no
information on communication between the USDA and the EPA prior to the USDAs decision.
However, to control for any unmeasured effects that this handoff process may have on USDA
decision-making, we included a dummy variable for plant-incorporated protectants.
We also controlled for whether or not a petition contained confidential business
information, as indicated in the USDAs registry of GMO petitions using a dummy variable. If
the genetic transformation used to create a GMO is fundamentally different from that of a
previously approved article, the USDA annotates this in their registry of GMO petitions. Using
this information, we controlled for novel technology using a binary variable. Because numerous
GMO petitions can produce a traffic jam, slowing the regulatory approval process, we controlled
for the total number of petitions under review at any given time (GMO submission density).
Finally, because uncertainty may increase when a GMO embodies multiple trait transformations,
we controlled for the number of phenotype traits (phenotype variety) using a count variable.
Environmental-level control variables. We included a number of variables to control for
the political context and advocacy for the public interest. Because the political orientation of
elected officials can affect how they supervise government agencies like the USDA, we


27

controlled for the relative conservatism of Congress (congressional conservatism) by averaging
the annual ratings of U.S. senators and representatives compiled by the American Conservative
Union (ACU). The ACU is the oldest conservative lobbying organization in the country, and its
ratings have been used in prior research to measure legislators adherence to conservative
ideologies (Poole & Daniels, 1985; Hill, Hanna, & Shafqat, 1997). The ACUs individual ratings
are based on the percentage of votes a representative or senator makes in accordance with ACU
positions.
We also controlled for congressional electoral competiveness, in keeping with prior
research, using Congressional Quarterlys forecasts for Senate and House contests (Franklin,
1991; Koch, 1998). Previous studies have found that competiveness increases congressional
responsiveness to the public interest and stimulates legislative action on issues (Skocpol &
Finegold, 1982; Hill et al., 1995). The competiveness measure is a 4-point variable: 0 indicates a
safe seat, 1 that a particular candidate is favored, 2 that the race is leaning toward a particular
candidate, and 3 that there is no clear favorite. We averaged all Senate and House races to create
a composite yearly score. We also controlled for firm lobbying of elected officials by summing
annual company campaign donations to U.S. Senators and members of the House between 1999
and 2007. Because this variable was not significant and was limited to only half of the years
covered in our study (Congress began collecting this information in 1999), we omitted it from
the final analysis.
We controlled in two ways for advocacy for the public interest prior to a GMO approval
decision. First, we controlled for public advocacy in favor of GMO approval by counting the
number of press releases that biotechnology firms generate about products they submit for
USDA approval (firm press releases). Prior research has found that media coverage can


28

significantly affect public opinion on firms actions (Pollock & Rindova, 2003; Pollock, Rindova,
& Maggitti, 2008). Thus firms have strong incentives to shape public opinion of their products
by promoting favorable news coverage through press releases. We counted all press releases to
journalists by firm and product leading up to GMO approval decision found in the press-release
database of Lexis-Nexis.
We also controlled for public advocacy in opposition to GMO approval by including
counts of reported protests against GMOs (GMO protests) and consumer-group opposition to
GMOs. Prior research has demonstrated that protests and consumer-group activism can
significantly influence an agencys decisions by negatively affecting its legitimacy (King &
Soule, 2007; Weber, Rao, & Thomas, 2009). Thus protests and consumer-group opposition may
influence the USDAs decision making by challenging its legitimacy as a guarantor of food
safety. Following previous research (King, 2008), we summed the annual number of protests
against GMOs reported in local and national U.S. newspapers using the Lexis-Nexis newspaper
database. We believe that this is a reliable measurement; protests that receive no media attention
are apt to be invisible to the broader public and thus to have little effect on agency legitimacy.
5

We measured consumer-group opposition to GMOs by tallying the number of letters that
consumer groups sent to the USDA urging disapproval. We obtained this information from the
USDA.
Analysis
We employed an event-history analysis to investigate the effects of stakeholder and peer-
agency signals on the rate of petition approval by the USDA. We used a Cox proportional

5
In Lipskys (1968: 1151) words: If protest tactics are not considered significant by the media, . . . protest
organizations will not succeed. Like a tree falling unheard in the forest, there is no protest unless protest is perceived
and projected.


29

hazards model because, unlike parametric regression models, it does not require assumptions
about the shape of the baseline hazard, resulting in greater flexibility. The hazard rate is given as
h
i
(t) = h
0
(t) exp ()
where h
0
(t) is the baseline hazard function and are the covariates and unknown regression
parameters. We included organizational fixed effects to control for any unmeasured
heterogeneity. Some of our interaction variables, such as Peer-agency signal Foreign company
and Peer-agency signal Novel technology, were highly correlated, which can lead to inflated
standard errors and unstable regression coefficients. We used a Gram-Schmidt procedure to partial
out the common variance between the highly correlated variables (Cohen & Cohen, 1983). We
then tested for multicollinearity and found that all variance-inflation factors in the event-history
analysis were less than 4.97 and that the majority were less than 2.35, indicating an acceptable
level of multicollinearity (Afifi, Clark, & May, 2004).

RESULTS
Descriptive statistics and bivariate correlations appear in Table 1; the results of the Cox
hazard model predicting the rate of GMO product approval appear in Table 2. In the latter table,
model 1 shows the effects of the control variables only; model 2 adds positive signals from salient
stakeholders (farm-association approval requests); model 3 adds positive signal from a peer agency
(FDA consultation); model 4 includes the interaction between salient-stakeholder signals and
congressional electoral competitiveness; model 5 adds the interaction between salient-stakeholder
signals and GMO protests; model 6 adds the interaction between peer-agency signal and foreign
company; model 7 includes the interaction between peer-agency signal and novel technology; and
model 8 includes all the independent variables and their interactions.


30

---Insert Table 1 and Table 2 about here---
Several control variables had a significant effect on product-approval rates. The petition-
approval rate was lower for companies with a history of failed product submissions. It was also
lower for foreign companies, suggesting that development and testing under non-U.S. standards
increased uncertainty regarding a GMOs safety. Novel technology, congressional electoral
competitiveness, and GMO protests also reduced approval rates, consistent with our speculations.
The tenor of journal publications also had a negative impact on approval rate. The latter effect may
be due in part to firm sponsorship of journal articles: nearly 53 percent of articles with a positive
tenor were sponsored by biotechnology companies. This high rate of corporate sponsorship may
cause the USDA to discount positive-tenor publications in its decision-making (Trumbull,
forthcoming). Other direct forms of political influence, such as lobbying by political officials and
advocacy via press releases did not have a significant effect on agency decision making.
All of our hypotheses were supported. Our results provide strong support for Hypothesis 1,
which predicts that positive signals from salient stakeholders (farm-association approval requests)
would increase the rate of regulatory approval. Model 2, for example, shows that signals from farm
associations increase GMO product approval by a factor of 2.65. Our results also provide strong
support for Hypothesis 2, which posits that a positive signal from a peer agency (FDA consultation)
increases the rate of regulatory approval. Model 3 shows that an FDA consultation increases GMO
product approval by a factor of 5.15.
Hypotheses 3 and 4 suggest that the influence of salient-stakeholder signals will increase
with greater uncertainty about a decisions consequences. Hypothesis 3 predicts that the effect of
stakeholder signals will be greater if congressional electoral competitiveness is high. Model 4
shows that farm-association signals increase GMO approval rates by a factor of 1.68 if


31

congressional electoral competitiveness is high, providing support for hypothesis 3. Hypothesis 4
predicts that the effect of salient-stakeholder signals will be greater in the presence of anti-GMO
protests. According to model 5, salient-stakeholder signals increase GMO approval rates when
there is greater consumer activism against GMOs by a factor of 1.52, providing support for
hypothesis 4. The interactions in Models 4 and 5 bolster our claim that the influence of salient
stakeholders rests on signaling rather than direct political influence. For example, if the
significant effect of salient stakeholders rested simply on their political influence, rather than
signaling, the positive effects of farm-association support would be mitigated by protests (hence,
a negative moderating effect). Because our results indicate a positive moderating effect, they rule
out the alternative explanation of direct political influence often put forth in the literature on
businessgovernment relations, and thus increase confidence in our theoretical arguments.
Hypotheses 5 and 6 suggest that the influence of peer agencies signals will increase with
uncertainty about a GMO product and its producer. Models 6 and 7 generally support these
hypotheses. Hypothesis 5 predicts that a positive signal from a peer agency will have a greater
positive effect on the rate of regulatory approval for firms of non-U.S. origin. According to Model
6, an FDA consultation increases the rate at which the USDA approves GMO petitions for foreign
companies by a factor of 15.00. Model 7 supports Hypothesis 6, which predicts that a signal from a
peer agency will have a greater effect when a biotechnology product is novel; the approval rate
increases by a factor of 9.28 for GMOs with novel technology (radical transgenic events). Model 8
shows that all interactions are statistically significant net of each other.



DISCUSSION AND CONCLUSION
This article examines a question seldom addressed by prior work on business


32

government relations but critical in understanding those relations: What factors shape the
decision making of the government agencies most in contact with businesses through policy
implementation? Our results reveal an interesting but ironic answer: regulatory agencies are
influenced by the firms they regulate, but not exclusively via the direct influence posited by
traditional regulatory-capture perspectives, such as lobbying, sponsorship of scientific research,
and advocacy (Dal Bo, 2006; McCraw, 1975; Etzioni, 2009; Pollock & Rindova, 2003). Instead,
we find that agency decision making is affected by the social influence of third-party actors,
namely agency stakeholders and peer agencies.
Our study illustrates that signals from salient stakeholders and a peer agency positively
influenced GMO product approvals by reducing uncertainty surrounding the agencys pursuit of
legitimacy. The results show that the influence of signals from farm associations increases with
greater consequential uncertainty flowing from competitive congressional races and collective
protests; the influence of signals from a peer agency increases with greater uncertainty about
safety associated with the product and producer. In models not shown here, the influence of
salient-stakeholder signals increased with consequential uncertainty but not with procedural
uncertainty. In contrast, peer-agency signals increased in influence with procedural uncertainty
but not with consequential uncertainty. This constitutes strong evidence that the mechanisms
whereby signaling reduces uncertainty are differentiated.
Our study makes several important contributions. In particular, our focus on regulatory
agencies and third parties has profound consequences for research on business-government
relations (Bonardi et al., 2005). Given that regulatory agencies are the government agencies that
have the most contact with businesses, via day-to-day interpretation and execution of laws, it is
surprising how little is known about their operations (Holburn & Vanden Bergh, 2002). We fill


33

that vacuum by putting regulatory agencies at center stage and examining the nature of their
decisions that can have critical impact on firm performance. We do this by portraying regulatory
agencies not merely as discrete economic entities but as social actors striving to maintain
legitimacy and maximize autonomy (Skocpol, 1985; Whetten, 2006; King et al., 2010). This is
an important insight because traditional research in economics and political science often views
businessgovernment relations as asocial exchanges in a marketplace where policy demanders
and suppliers transact over regulatory decisions (Hillman & Keim, 1995; Bonardi et al., 2005).
This conventional approach, albeit insightful, ignores the important roles of legitimacy,
uncertainty, and social influence in regulatory decision making. Our findings support the
assertion that the presence of uncertainty, in conjunction with anxiety about legitimacy,
motivates regulatory agencies to look to third-party actors for additional information. Thus this
study enriches the prevailing imagery of regulators as economic actors and suggests that future
businessgovernment relations literature would benefit from a more nuanced approach that goes
beyond asocial exchanges between regulators and those they regulate.
Our findings introduce new insights into the signaling literature by showing how
regulatory agencies use social information from third parties as signals to manage uncertainty
and legitimacy. Scholars of strategy and organization have taken great interest in how firms use
implicit forms of influence, including the features of top-managers personal histories (e.g.,
Zhang & Wiersema, 2009) and organizational structures and policies (e.g., Zajac & Westphal,
2004), as signals to affect external audiences responses and shape market outcomes. But little is
known about different signals from various third-party actors, since prior work has tended to
treat external audiences as undifferentiated sources of critical resources, social support, and
legitimacy (Baum & Oliver, 1992; Stuart et al., 1999). We extend previous research by


34

identifying influential third-party actors and showing how each employs various mechanisms of
influence. Inquiry of this kind allows us to examine whether, and under what conditions, signals
from different third parties leads to differential regulatory decisions.
This paper also contributes to the strategic management literature by suggesting how
firms in highly regulated environments can pursue political or nonmarket strategies to influence
regulatory decision making (Shaffer & Hillman, 2000). Prior research contributed to our
conceptual understanding of the importance of government policy to firm performance and of the
circumstances in which firms would engage in political strategies (Dobbin & Dowd, 1997;
Hillman & Hitt, 1999). For example, scholars explored how firms reacted to variation in their
political environments (e.g., Henisz & Delios, 2001; King & Shaver, 2001), but very few have
empirically examined how firms can influence regulatory decision making (Hillman & Keim,
1995). We find that regulatory agencies preoccupation with legitimacy creates conditions in
which firms can influence regulatory decision making by capturing third-party actorsin this
case, salient stakeholders and peer agencies. By describing the mechanisms whereby companies
can indirectly influence regulatory outcomes, we offer a richer understanding of nonmarket
strategy and performance.
Finally, our study clearly has significant implications for firms in regulated industries.
The agricultural-biotechnology firms in our study that gained external support from farm
associations received approval decisions about 162 days sooner than average, and those firms
that held labeling consultations with the FDA shaved about 257 days off the average wait. This is
consequential: it can cost a biotechnology firm up to $2 million in forgone revenue for each day
its product is under review rather than on the market (Monsanto, 2010). We believe that
implementation of triadic relationships to influence government agencies is also feasible in other


35

regulated domains, such as the public-utility, oil-and-gas, and pharmaceutical sectors (Carpenter,
2001; Sine et al., 2005). In such sectors, firms will have at their disposal not just direct tools like
lobbying and expert testimony, but also indirect tools such as connections to important third-
parties. It will be an important direction for future research and practice to investigate the
relationships among these tactics and to distinguish their relative importance.


36

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41

Table 1. Bivariate Correlations and Descriptive Statistics

Variable Mean
Std.
Dev. 1 2 3 4 5 6
USDA approval 0.324 0.469
1
Salient-stakeholder signals (Farm association
approval requests) 0.611 1.214 1
2 Peer-agency signals (FDA consultation) 0.352 0.480 0.141 1
3 Failed petitions 0.245 0.235 -0.198 0.062 1
4 Foreign company 0.324 0.470 -0.121 -0.055 0.323 1
5 Patent citations * 100 64.806 86.510 -0.012 0.007 -0.061 0.403 1
6 Firm size / 1000 19.265 24.219 -0.053 0.189 0.169 0.169 -0.087 1
7 Confidential business information 0.250 0.435 0.044 0.246 -0.005 -0.034 0.010 0.294
8 Novel technology 0.852 0.357 0.146 0.144 0.157 -0.045 -0.134 -0.036
9 GMO field tests 52.537 73.062 0.051 0.154 0.050 -0.099 0.192 -0.012
10 GMO testing time 3.083 1.511 0.105 0.140 -0.113 -0.104 0.092 -0.015
11 General knowledge of gene transformations 5344 6923 0.023 0.149 0.138 -0.118 -0.054 0.023
12
Product-specific knowledge of gene
transformations 6.824 7.925 0.156 -0.158 -0.126 -0.100 -0.153 0.008
13 Tenor of journal publications 0.709 0.395 -0.107 -0.042 0.075 -0.026 -0.172 0.017
14 J ournal publications sponsored by firm 3.074 3.395 0.223 -0.119 -0.109 -0.115 -0.153 0.038
15 Phenotype variety 1.213 0.454 -0.086 0.039 -0.107 -0.064 0.014 0.076
16 Plant incorporated protectants 0.269 0.445 0.057 0.210 -0.197 -0.286 0.044 0.013
17 GMO submission density 13.611 4.954 -0.358 0.038 -0.055 -0.062 0.051 -0.107
18 Congressional conservatism 0.489 0.041 -0.037 0.128 0.255 -0.126 0.031 0.160
19 Congressional electoral competitiveness 0.477 0.153 -0.126 -0.159 -0.313 -0.133 -0.063 -0.174
20 GMO protests 8.574 12.825 -0.095 0.076 0.297 -0.065 -0.032 0.225
21 Consumer-group opposition to GMOs 0.454 1.403 0.291 0.011 -0.166 0.030 0.203 -0.009
22 Firm press releases 35.176 68.554 0.465 0.298 0.081 -0.187 -0.117 -0.068




42

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
7 1
8 0.000 1
9 0.122 0.141 1
10 0.082 0.075 0.407 1
11 0.190 0.132 0.399 0.318 1
12 -0.134 -0.194 -0.113 -0.071 0.129 1
13 -0.088 -0.013 -0.153 -0.005 -0.162 0.124 1
14 -0.114 -0.230 -0.078 0.050 0.149 0.868 0.240 1
15 -0.036 -0.092 0.096 0.137 0.193 0.073 0.135 0.123 1
16 0.181 0.135 0.350 0.272 0.628 0.032 -0.080 0.049 0.315 1
17 -0.262 0.009 0.006 0.044 -0.029 0.102 0.121 -0.049 0.021 0.154 1
18 0.238 -0.131 0.261 0.010 0.069 0.112 -0.046 -0.091 -0.082 0.013 -0.078 1
19 -0.401 0.029 0.033 0.087 -0.160 0.051 0.116 0.056 -0.011 0.154 0.525 -0.287 1
20 0.369 -0.071 0.199 0.013 0.265 0.021 -0.016 0.011 0.016 0.089 -0.426 0.517 -0.627 1
21 0.149 -0.163 -0.039 0.079 -0.137 0.036 -0.030 -0.003 0.023 -0.047 -0.415 -0.033 -0.062 -0.047 1
22 0.165 0.097 0.393 0.148 0.245 0.023 -0.169 0.053 -0.114 0.073 -0.289 0.289 -0.394 0.255 0.114




43

Table 2. Cox Event-History Regression of GMO Approval Rate

Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
Independent variables
H1 Salient-stakeholder signals (Farm
association approval requests) 0.973** 1.111** 1.058** 1.282*** 1.173** 1.137** 1.867**
(0.429) (0.449) (0.459) (0.480) (0.456) (0.448) (0.807)
H2 Peer-agency signals (FDA
consultation) 1.639*** 1.787*** 1.627*** 0.569** 0.772*** 0.720***
(0.514) (0.543) (0.521) (0.231) (0.230) (0.257)
H3 Salient-stakeholder signals X
Congressional electoral competitiveness 0.519** 0.823*
(0.260) (0.430)
H4 Salient-stakeholder signals X GMO
protests 0.417* 1.259**
(0.251) (0.571)
H5 Peer-agency signals X Foreign
company 2.708** 2.849**
(1.113) (1.150)
H6 Peer-agency signals X Novel
technology 2.228* 2.506*
(1.238) (1.297)
Firm-level factors
Failed petitions -5.383** -5.325** -6.488** -5.970** -6.549** -6.276** -5.926** -4.943*
(2.498) (2.489) (2.638) (2.679) (2.647) (2.682) (2.632) (2.745)
Foreign company -23.440** -24.162*** -22.865*** -23.414*** -22.967*** -21.421*** -21.445** -20.575***
(10.003) (6.755) (7.411) (6.979) (7.429) (7.462) (10.372) (6.645)
Patent citations * 100 0.005 0.009 0.008 0.003 0.006 -0.002 0.001 -0.013
(0.017) (0.018) (0.020) (0.019) (0.020) (0.020) (0.020) (0.020)
Firm size / 1000 -0.079 -0.078 -0.077 -0.086 -0.099 -0.105 -0.062 -0.094
(0.116) (0.117) (0.121) (0.124) (0.124) (0.124) (0.119) (0.126)
Firm fixed effects Yes Yes Yes Yes Yes Yes Yes Yes

Product-level factors
Confidential business information 0.003 0.158 0.433 0.389 0.402 0.468 0.352 0.251
(0.551) (0.569) (0.653) (0.659) (0.655) (0.675) (0.655) (0.688)
Novel technology -0.824* -1.081** -0.335** -1.084** -0.987* -1.381** -1.233** -1.477**


44

(0.497) (0.531) (0.171) (0.551) (0.566) (0.576) (0.564) (0.639)
GMO field tests (logged) 0.003 0.004 0.006* 0.007** 0.007** 0.008** 0.007* 0.010**
(0.003) (0.003) (0.003) (0.003) (0.003) (0.004) (0.004) (0.004)
GMO testing time (years) 0.000 -0.023 -0.099 -0.145 -0.125 -0.063 -0.050 -0.083
(0.145) (0.148) (0.157) (0.163) (0.161) (0.157) (0.159) (0.171)
General knowledge of gene
transformations (logged) 0.011 0.003 -0.056 -0.062 -0.052 -0.092 -0.088 -0.129
(0.168) (0.171) (0.183) (0.188) (0.188) (0.182) (0.184) (0.190)
Product-specific knowledge of gene
transformations (logged) -0.033 -0.022 0.009 0.148 0.159 0.287 0.177 0.476
(0.441) (0.448) (0.475) (0.484) (0.498) (0.499) (0.483) (0.535)
Tenor of journal publications -1.168* -1.151* -1.703** -1.638** -1.650** -2.054*** -1.811*** -2.040***
(0.609) (0.630) (0.693) (0.704) (0.693) (0.758) (0.696) (0.754)
J ournal publications sponsored by firm -0.027 -0.078 -0.103 -0.097 -0.125 -0.147 -0.129 -0.140
(0.136) (0.144) (0.157) (0.160) (0.161) (0.159) (0.156) (0.165)
Phenotype variety -0.598 -0.420 -0.381 -0.695 -0.671 -0.611 -0.476 -0.831
(0.537) (0.537) (0.627) (0.689) (0.707) (0.586) (0.558) (0.641)
Plant-incorporated protectants 0.379 0.235 0.197 0.025 0.148 0.174 0.300 0.034
(0.805) (0.827) (0.899) (0.908) (0.914) (0.908) (0.920) (0.935)
GMO submission density 0.265 0.290 0.429 0.377 0.420 0.401 0.469 0.366
(0.295) (0.296) (0.313) (0.317) (0.316) (0.313) (0.315) (0.323)
Environmental-level factors
Congressional conservatism -14.958 -22.640 -32.604 -13.287 -26.554 -25.052 -35.961 -2.823
(69.984) (70.098) (73.722) (75.386) (74.672) (73.055) (74.040) (76.605)
Congressional electoral competitiveness -99.004** -91.792* -95.595* -111.010** -99.957** -95.688* -101.381** -126.561**
(48.838) (48.521) (49.786) (51.944) (50.828) (49.731) (49.752) (53.847)
GMO protests (logged) -4.492* -5.170* -5.275* -5.941* -5.557* -5.556* -5.459* -6.027*
(2.492) (3.090) (3.199) (3.302) (3.276) (3.205) (3.190) (3.178)
Consumer-group opposition to GMOs 0.441 0.365 0.394 0.443 0.426 0.597 0.482 0.718
(0.395) (0.404) (0.455) (0.473) (0.462) (0.481) (0.446) (0.491)
Firm press releases (logged) -0.029 -0.014 0.058 0.138 0.066 0.029 -0.102 0.001
(0.178) (0.181) (0.209) (0.216) (0.209) (0.218) (0.221) (0.233)
Wald Chi Squared 58.80** 61.14** 71.94*** 76.60*** 73.62*** 74.83*** 75.33*** 82.94***
Standard errors in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%



45

Figure 1. Theoretical Model of the Regulatory Approval Process

Signals from salient
stakeholders

(Farm-association
approval requests)
Regulatory-agency
(USDA) decision
making

(GMO approval)
Signals from peer
agencies

(FDA consultations)
Novel product
Foreign company
Collective activist
protests
Congressional electoral
competitiveness
Biotechnology
firms
Consequential Uncertainty
Procedural Uncertainty
H1+
H2+
H3+
H4+
H5+
H6+