Environmental regulation1 and awareness of future policy developments are among the most important drivers of corporate responses to ecological challenges (e.g., Kolk & Pinkse, 2004; Okereke & Russel, 2010). Yet, at the same time, policy frameworks often lack predictability and may have unforeseen consequences for the broader competitive landscape. The observation that such uncertainties impact corporate investments has fueled a debate on how firms respond to regulation-related uncertainties (Engau & Hoffmann, 2009). For instance, since the corporate sector is one of the main contributors to global warming, the introduction of climate policies is intended to spur company investments in carbon abatement measures. However, research has disputed whether such policies actually fulfill their purpose, because the uncertainty inherent in the regulation prevents companies from accurately planning and reduces their willingness to commit resources to such investments (Marcus, 2009; Rogge, Schneider, & Hoffmann, 2011).

Hoffmann, 2011). This paper examines the relation between uncertainty resulting from environmental regulation and companies’ propensity to invest in abatement measures. We define abatement measures as conscious efforts that a firm undertakes for the purpose of reducing its ecological footprint. By conducting a quantitative analysis of different uncertainty-related effects on firm investment behavior, we investigate two important aspects within this relation. First, unlike several previous empirical studies, we do not treat uncertainty as a broad and homogeneous construct. Instead, we build on the definition presented by Hoffmann, Trautmann, and Schneider (2008) and study two different sub-dimensions of regulationrelated uncertainties: regulatory and regulation-induced uncertainty. The former describes the uncertainty related to the overall characteristics of and changes in a regulation, such as its scope and rules. The latter represents uncertainty about the indirect consequences of a regulation once it has been implemented, such as changes in market conditions and prices.

Second, we analyze how a firm’s investment history influences firm investments given regulation-related uncertainties. While different research streams have shown that a firm’s previous decisions are related to future decisions (Vergne & Durand, 2010), so far the literature reveals very little on how regulation-related uncertainty may affect this relation. Specifically, we argue that incorporating investment history into our analysis provides insights into the mechanisms underlying the uncertaintyeinvestment relation. This paper accordingly addresses the following two research questions: do the two different subjectively perceived dimensions of regulation-related uncertainty increase or decrease a firm’s propensity to invest in abatement measures? And, in the presence of these uncertainties, what role does a firm’s investment history play in its investment decisions?