Do Historical Imprints Lead to Corporate Transgressions? A Study of Regulatory Transition in India

Abstract

In this paper, we investigate the impact of history of an organization on its practices of corporate misconduct. Using the context of institutional transitions in India, we hypothesize that the protectionist and constraining economic policy regime of the closed economic era lead to a competitive deficit for incumbent firms and inscribe imprints in the form of organizational routines of rent-seeking and corruption. By virtue of the stamping of these routines, we find support that the degree of imprinting of incumbent firms positively impacts corporate misconduct of earnings manipulations in the post-liberalization period. By utilizing the historical data of the Indian economy during 1956-1991 and analyzing a sample of 2396 listed Indian manufacturing firms during 1994-2007, we find support for our baseline hypothesis. Furthermore, we find that this effect diminishes by the moderating effect of international exposure and internal innovation development by the focal firms. By foregrounding the effect of history on a firm’s contemporary actions, this study aims to contribute to the literature of determinants of corporate misconduct of emerging economies’ firms.