Academic journal article Academy of Accounting and Financial Studies Journal

Escape from the Iron Cage: Longitudinal Study of the Relationship between Government Regulatory Forces and Firm Compliance Strategy in the Natural Environment

Academic journal article Academy of Accounting and Financial Studies Journal

Escape from the Iron Cage: Longitudinal Study of the Relationship between Government Regulatory Forces and Firm Compliance Strategy in the Natural Environment

Article excerpt

ABSTRACT

This paper investigated how government influenced firms and firms influenced government. The context was the natural environment. The paper found that as government regulatory forced increase, firms chose to acquiesce or compromise. Further, as the government relaxed regulatory pressures, firms attempted to manipulate the government in their own interest. Also, as firms attempted to manipulate the government in their own interest, the government relaxed regulatory pressures. Finally, as firms chose to acquiesce or compromise, the government increased regulatory forces. The findings buttressed neo-institutional theorists in that the institutional forces studied did not lead to isomorphism.

The analysis found that firms met changes in the institutional environment with a large array of strategies, ranging from acquiescence and compromise to manipulation. When studied over time, the relationships further illuminated the beliefs of neo-institutional thinkers. When the government chose to apply aggressive regulatory forces, firms responded by acquiescing or compromising, leading to more government pressure which resulted in more acquiescence and compromise. As governments decreased regulatory pressures, firms attempted to manipulate the government, which lead to relaxation of regulatory forces by the government. Thus, over time, the combined firm-government field became increasingly less isomorphic.

KEY WORDS: Longitudinal, government, regulation, business strategy

INTRODUCTION

The study's first objective was to investigate how governments' regulatory forces impacted firm strategy. Second, this paper considered how changes in firms' compliance strategies influenced governments' regulatory forces. Third, the paper discussed that these relationships could lead the combined firm-government field to diverge from isomorphic behavior. Firm strategies ranged from acquiescence and compromise to attempts to manipulate the government for their own ends. The paper addressed one of firms' most important green issues: How to interact with the government. This study compiled data over a six-year period to allow tests of changes in firm strategies and government regulatory forces over time.

Firm Strategies Through the Neo-institutional Theory Lens.

Institutional theory was one of the oldest and best developed in management. Researchers applied institutional theory to international activities (Björkman & Lu, 2001), organizational structure (Slack & Hinings, 1994), impacts on managers (Wicks, 2001), organizational change (Haveman, 1993), internal organizational activities (Goodstein, 1994), and industry and national level effects (Ofori-Dankwa, 1993).

While researchers used many theoretical and disciplinary lenses through which to view green issues, a major share of research used institutional theory as a foundation (Jennings, Devereaux & Zandbergen, 1995; King & Lenox, 2000). This study discussed how the recent progress of institutional theory helped explain the relations between firm strategies and regulatory forces.

Institutional theory as suggested by Weber ( 1 930), defined by Parsons ( 1956a, b), elaborated by Thompson (1967) and refined by Hirsch (1975), investigated how external forces drive an organization. DiMaggio and Powell ( 1 983) built upon the previous institutional research by arguing that coercive forces, such as government regulatory forces, as well as normative and mimetic forces, drove firms to adopt specific strategies.

Many institutional theorists believed that the main contribution of DiMaggio and Powell's (1983) memorable article 'The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields' was that institutional, including regulatory, forces drove firms to isomorphism. Neo-institutional scholars rejected this common picture of organizations as passive instruments of a dominating external control system (Hoffman & Ventresca, 2002). …

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