Academic journal article Entrepreneurship: Theory and Practice

Institutional Theory and Entrepreneurship: Where Are We Now and Where Do We Need to Move in the Future?

Academic journal article Entrepreneurship: Theory and Practice

Institutional Theory and Entrepreneurship: Where Are We Now and Where Do We Need to Move in the Future?

Article excerpt

Institutional theory is an increasingly utilized theoretical lens for entrepreneurship research. However, while institutional theory has proven highly useful, its use has reached a point that there is a need to establish a clearer understanding of its wide-ranging application to entrepreneurship research. Therefore, we will initially review the existing entrepreneurship literature that employs institutional theory to both understand the current status of the field, its current shortcomings, and where we need to move in the future. We then summarize and discuss the articles in this special issue and how they contribute to this process of advancing institutional theory and its application in entrepreneurship research.

Introduction

Institutional theory has proven to be a popular theoretical foundation for exploring a wide variety of topics in different domains ranging from institutional economics and political science to organization theory (DiMaggio & Powell, 1991). The application of institutional theory has proven to be especially helpful to entrepreneurial research. Beginning with Shane and Foo's (1999) exploration of franchising success, institutional theory is playing a major role in helping to explain the forces that shape entrepreneurial success, apart from organizational (or entrepreneurial) resources (Ahlstrom & Bruton, 2002; Peng, 2006). While Shane and Foo's work focused on domestic U.S. franchising, institutional theory, as suggested by Hoskisson, Eden, Lau, and Wright (2000), has also proven to be particularly powerful in examining international related topics. This introductory article to the special issue will initially seek to review the existing entrepreneurship literature that employs institutional theory in order to understand the current status of the field, its current shortcomings, and where we need to move in the future.

Historically, the resource-based theory of the firm (Barney, 1991) has been one of the key theories in entrepreneurship because access to resources is central to the success of a new venture (Bhide, 2000). While resources are certainly vital, it has increasingly become clear that issues such as culture, legal environment, tradition and history in an industry, and economic incentives all can impact an industry and, in turn, entrepreneurial success (Baumol, Litan, & Schramm, 2009). Institutional theory provides a theoretical lens through which researchers can identify and examine these issues. However, while institutional theory has proven highly useful in entrepreneurship, its use has reached a point that suggests a need to establish a clearer understanding of its wide-ranging implications for entrepreneurship research. As a result, this special issue of Entrepreneurship Theory and Practice focuses on institutional theory and its application to entrepreneurship. The goal is to expand the theoretical foundations for the theory and to highlight the innovative insights that can come from institutional theory by reviewing the current use of the theory in entrepreneurship. We will conclude the article by establishing where we need to move in the future and by summarizing and discussing the articles in this special issue and how they contribute to this process.

Foundations of Institutional Theory

Institutional theory is traditionally concerned with how various groups and organizations better secure their positions and legitimacy by conforming to the rules and norms of the institutional environment (Meyer & Rowan, 1991; Scott, 2007). The term "institution" broadly refers to the formal rule sets (North, 1990), ex ante agreements (Bonchek & Shepsle, 1996), less formal shared interaction sequences (Jepperson, 1991), and taken-for-granted assumptions (Meyer & Rowan) that organizations and individuals are expected to follow. These are derived from rules such as regulatory structures, governmental agencies, laws, courts, professions, and scripts and other societal and cultural practices that exert conformance pressures (DiMaggio & Powell, 1983, 1991). …

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