Monday, March 14, 2016

Institutional Logics and Power Sources: Merger and Acquisition Decisions

GREVE Henrich, ZHANG Cyndi M.
Access the publisher's website Academy of Management Journal (forthcoming)

Institutional theory has explained the greater prevalence of many strategic actions by increases in their legitimacy over time, but it has not explained how firms choose among actions backed by competing institutional logics.
The authors address this topic by linking institutional logics with the theory of organizational coalitions and power to predict how such choices are affected both by external influence (through ownership) and by internal influence (through shared decision making). In particular, we analyze how the old state socialism logic and the new market capitalism logic competed to influence Chinese firms’ mergers and acquisitions. The authors find that these institutional logics affected M&A decisions via the coalitions committed to each logic—coalitions whose balance of power reflected the external power source of ownership and the internal power source of board representation. The authors also find that each coalition’s strength changed as the market capitalism logic became more established during China’s economic transition, and that investors viewed M&As by firms with high state ownership skeptically.