Rules bound: how institutional effects diffuse through and bind the market relations between firms
AuthorFalk, Michael Rowley
Document TypePhD thesis
Access StatusOpen Access
© 2018 Dr Michael Rowley Falk
Institutions, in the sense of durable systems of behavioural rules, norms and beliefs, are generally limited in their scope. Collective rules and norms are developed for specific behaviours and enforced within delimited social domains. This dissertation examines how, in shaping the behaviour of firms, the effects of institutions diffuse from their original contexts to outside domains. It explores how firms’ market relations may serve as a conduit for this diffusion. Chapter One provides a context to, and overview of, the entire dissertation. A conceptual framework is introduced that distinguishes between four kinds of institutional effects on firm behaviour. Collective rules and norms can have direct effects, in promoting the adoption of behaviours in relation to which those rules and norms have developed. Institutions can also have diffuse effects, as when actors observe and react to how rules and norms are enforced on others. These direct and diffuse effects of institutions can unfold inside the domains in which they are established and enforced. Alternatively, the effects of an institution may be extra-jurisdictional, impinging on actors who are far from the institution’s original domain. A theoretical account of those effects that are at once diffuse and extra-jurisdictional is identified as a central contribution of this dissertation. Chapter Two presents the first of two empirical studies, entitled ‘Rules That Bound: How External Regulation and Partner Dependence Combine to Drive Practice Adoption.’ The study features a quantitative analysis of how regulation—explicit rules, administrative guidelines and laws (Scott, 1995)—affects the adoption of practices by the suppliers to a regulated industry. A novel dataset is utilised which tracks the adoption of green building design practices by a panel of 226 architecture studios in Australia from 2008-2015. In line with my theoretical predictions, I find that firms are influenced by regulations from jurisdictions where they do not operate but where their prospective clients do. In their responses to extra-jurisdictional regulation, firms are shown to vary to an extent that depends on a firm’s power relative to that of its clients. Chapter Three, entitled ‘Rules That Bind: The Observance of Norms in Early Stage Interorganisational Relations,’ explores how social norms—implicit behavioural rules which specify what is valued and what ought to be done (Scott, 1995)—function to draw firms into productive relations. This study involves a qualitative analysis of 22 early stage relationships between Australian design service firms and their clients. Using inductive multiple-case analysis, I identify a system of norms that influence the tendency of client firms to act cooperatively in new relations. Clients providing unilateral and weakly contingent benefits to their suppliers is found to have a positive effect on relationship development. I propose that this effect is mediated by a firm’s judgment of its client’s ‘character’ (i.e. the client’s underlying behavioural tendencies and values). In addition, this study suggests a previously unidentified contingency in the social judgment process by which corporate reputation forms: as a firm’s power increases relative to that of its client, the firm is more likely to impute positive character to the client for conduct that conforms to prevailing norms. Taken together, the findings from this research suggest that firms are receptive to how their prospective clients are operated upon by institutional forces, including by forces emanating from outside domains. The behavioural effects of institutions are found to diffuse, within and across contexts, through the market relations between firms. Consistent across the two studies presented, firms’ responses to institutional effects on their clients are found to vary to an extent that depends on a firm’s power relative to that of its clients. Following resource dependence theory, power is defined in terms of a firm’s control over vital resources and as a property of exchange relations (Emerson, 1962). This leads to the conclusion that as institutional effects diffuse through the relations between firms they are moderated by properties of those relations.
KeywordsInstitutions, regulation, interorganisational relations, resource dependence, social judgment, organisational power
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