Institutional Theory

Institutional theory serves as one of the most important and widely used organizational theories in management research. The theory emphasizes the role of institutions, with a particular emphasis on how institutions influence and are influenced by firm and entrepreneurial activities. Institutions clarify expectations and guide and facilitate activities within a society. Institutions come in various forms, but generally institutions are the systems of rules, prescriptions, and supporting apparatuses that define what is socially acceptable in a specific context. Beyond defining what is socially acceptable, institutions also provide incentives and constraints to encourage compliance. Governments, for example, specify laws and regulations that establish legal definitions of what is socially acceptable, and police and/or other monitoring agencies (e.g., Food and Drug Administration, Federal Deposit Insurance Corporation) ensure ...