How Community Alignment Affects Bank Survival: Institutional Legacies and Resource Dependence

Abstract

Despite an increasing academic interest in the interaction between organizations and geographic communities, we know little about how firms strategically align themselves to communities, and when they benefit from such practices. Based on research on resource dependence and institutional legacies, we develop a theory on community alignment by organizations. We propose that organizations can attempt to align by adjusting key organizational elements or fulfilling the community’s social needs. The benefits of such efforts can offset the added costs, particularly at times of financial crisis, through the forging of mutual dependency which offers an informational advantage, access to community social capital and joint actions. Testing our hypotheses using data from the U.S. commercial banking industry, we find that banks with stronger organizational and social community alignment are less likely to fail, especially during economic crises. Our theory and findings contribute to research on organization and community interactions, institutional legacies, and competition between large and small corporations.