Abstract
Regulators increasingly engage in extraterritorial law enforcement, but its deterrence effects on organizations remain poorly understood. Based on a case study in the Swiss private wealth management industry, we explore the conditions under which U.S. extraterritorial law enforcement provoked cross-border general deterrence, preventing not only the prosecuted Swiss banks but also the unprosecuted ones (i.e., the observers of the events) from violating U.S. law when a peer was prosecuted for similar behavior. Our inductive analysis led us to integrate deterrence theory with a novel cultural-cognitive, organization-centered perspective on regulatory territory: the spatial scope of a regulator's jurisdictional authority. This integration suggests that unprosecuted banks'territorial self-categorization-a form of spatial self-categorization that leads them to conclude whether they are located inside or outside what they perceive to be a foreign regulator's territory-is critical for explaining cross-border general deterrence. Our findings emphasize the significance of the clarity with which the U.S. regulator communicated its regulatory territory and how different types (which we call locals and cosmopolitans) of organizations' taken-for-granted categorization schemes influenced their rational choices and instrumental actions. We contribute to scholarship on organizations' legal environment and to organizational research on categories.