The influence of the institutional context on corporate illegality

Abstract

This paper examines the relationship between the institutional environment and sustained corporate illegality. We find that cognitive assumptions generate expectations that can, under specific circumstances, induce organizations to amplify illegal actions and that serve to lessen regulatory scrutiny. We also find that, once initiated, illegal actions can become hidden because of institutionalized practices that enable their concealment and that weaken the prospect of detection. These processes and effects are particularly noticeable in networks of professional regulators who become mutually over-confident and over-influenced by each other to the extent that their independent critical assessments and judgements are compromised. Mechanisms of mimetic herding and social humiliation compromise independence of judgement. Networks of interacting professionals are thus vulnerable to a collectively induced lowering of regulatory vigilance.