Abstract
This paper sheds light on the role of religion as a separated institutional logic on firm behavior and performance, particularly in the context of corporate development strategies and decision making. We argue that religiosity in a firm’s environment influences decision making of organizations when initiating and evaluating corporate development strategies and hence leading to uneven distribution of economic activity. We focus on leveraged buyouts (LBOs) an important strategic initiative associated with high levels of perceived risk from increased financial leverage, a drastic change in governance structure, and potential conflicts between stakeholders. We contend that local religiosity reduces the likelihood of LBO transactions that nonetheless creates a favorable selection process resulting in a lower rate of LBO bankruptcies. We find results supporting our predictions in a unique sample of 4,633 US buyouts in 1980-2003.
Highlights
Numerous studies grounded in institutional theory have documented the influence of institutional contexts on firm behavior and performance [1]
Building on research on institutional logics and following the work of Boltanski and Thevenot [14,15,21,22,23,24], on “regimes of justification” and their impacts on decision making, we argue that the extent of local religious adherence influences firms’ decisions when initiating and evaluating corporate development strategies
We focus on leveraged buyouts investments as an excellent example of a major corporate development strategy associated with a drastic change in governance structure, and potential conflicts of interest with a firm’s stakeholders
Summary
Numerous studies grounded in institutional theory have documented the influence of institutional contexts on firm behavior and performance [1]. LBOs are fundamentally a risky endeavor from organizational and social perspectives, for the firm’s stakeholders, and for overall firm survival Pe’er organizations’ [28,29], decision making, leading to a lower level of buyout activity at a higher level of local religiosity.
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