Abstract
One of the lessons learned from the recent financial-sector crisis is that institutions may sometimes sow the seeds of their own destruction. We offer a two-tiered analysis of how the diffusion of innovative practices - in this case, issuing and securitizing subprime mortgages - can lead to an unanticipated breakdown of established institutions. At the institutional level, we demonstrate that the lack of effective external regulatory presence, the emergence of new norms through the introduction of a new institutional logic, and intense mimetic and competitive pressures may lead organizational actors to exploit a suboptimal innovation. At the organizational level, we argue that over-embeddedness of central actors within relatively closed networks and superstitious learning processes can exacerbate the biases to which decision makers are susceptible, leading to the institutionalization of a suboptimal organizational practice. These two parallel sets of processes led to severe consequences at the institutional level, which we label "terminal isomorphism." We end by discussing consequences for institutional theory, future research directions, and recommendations for policy makers.
Original language | English (US) |
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Pages (from-to) | 183-216 |
Number of pages | 34 |
Journal | Research in the Sociology of Organizations |
Volume | 30 |
Issue number | PART A |
State | Published - Dec 1 2010 |
ASJC Scopus subject areas
- Organizational Behavior and Human Resource Management
- Sociology and Political Science