'How Institutional' are Institutional Investors? The Institutional Life of US Occupational Pension Funds

Abstract

Pension funds form an own domain within the general domain of finance as their institutional environments and arrangements of investment differ from other sub-domains. This working paper studies the institutional organization of the field of US occupational pension funds with new institutional theory including discussions on cultural economy approach to social studies of finance. US occupational pension fund investment actions are constituted and affected by various relevant institutions that are usually very diffused. The funds operate in heterogeneous regulative and normative environment in terms of form and sources, but the environment is somewhat homogeneous in substance. They face numerous constraints in their institutional environment, but most of these constraints simultaneously enable and give mandate and legitimization to various kinds of actions thus limiting the effectiveness of most constraints. The most restricting feature in the field level is the incentive to mimetic replication of conventional investment practice, which suggests that occupational pension fund investments are dependent on conventional models of investment whereas they are among the only actors that are capable of changing the very same models in the domain of finance. The main result of the paper in case of the organization field observed is that organization and governance methods can break conventional patterns and broaden the horizon of all pension fund actions enabled by their institutional environment. This may require, however, very strong institutional entrepreneurship in order to change investment behavior and especially corporate engagement practices in the occupational fund sector due to its cultural-cognitive restrictions.