Research Question/Issue:
This study explores how a new regulation prompts compliance by companies that are not the target of the rule.

Research Findings/Insights:
Our context is the enactment of a new Australian Securities Exchange (ASX) Listing Rule regarding remuneration committees, targeted at ASX300 firms. We investigate how this new regulation affects non-ASX300 firms compliance with ASX corporate governance recommendations regarding remuneration committees. We find that the mandatory requirement encourages the initial formation of a remuneration committee by non-ASX300 firms not subject to the requirement, and that it motivates those firms to further improve remuneration committee quality as recommended by the ASX Corporate Governance Council.

Theoretical/Academic Implications:
Our study contributes knowledge of voluntary behaviour by companies in a unique research context in which to explore the effect of a mandatory regulation change on non-target firms compliance with that regulation. Our results support the view that a new mandatory regulation can prompt non-target companies to follow it. This may be because it makes those companies more sensitive to its benefits.

Practitioner/Policy Implications:
This study offers insight to policy makers that regulations and recommendations influence less regulated companies, without a need to expand their scope of application to these more poorly resourced companies.