Abstract
Why do some firms learn from their history and change in the aftermath of misconduct while others do not? I argue that, while inertia in the structure of firms might create persistency towards past routines, variation in firms’ opportunities to reflect on and reconceive their past misconduct might explain variation in motivation to change and subsequent recidivism. Specifically, I posit that the more frequent use of the organizational routines that led to misconduct in the past might facilitate misconduct in the future, and that the relationship between past and future misconduct might depend on the time that has elapsed since last misconduct. To test these hypotheses, I turn to the U.S. Securities Industry and analyze the information on instances of misconduct across 648 brokerage firms over the period of 1990 to 2004. I find that organizational misconduct increases with the number of past misconduct. I also find that the positive relationship between past and future misconduct is weakened the longer it is the time that has elapsed since last misconduct. In doing so, I show that, despite persistency of past organizational routines, longer disengagement of firms from past misconduct routines provides opportunities for firms to lessen their propensity to engage in misconduct in the future as firms might forget routines that facilitate misconduct the longer those routines are unused. By doing so, I show that two models of change –i.e., through ossification of organizational routines and reconstruction of organizational memory– might interact to determine the temporal patterns of organizational change.
Published Version
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