1. The Evolution of Institutional Theory and Its Potential Use in Accounting Research By: Ersa Tri Wahyuni,PhD 1

2. Agenda  Introduction to Institution Theory  New Institutional Theory  Institutional Logic  Institutional Entrepreneurship  Institutional Work  World Society Theory  Questions and Answers 2

3. What is an Institution?  Institutions are social structures that have attained a high degree of resilience. [They] are composed of cultural-cognitive, normative, and regulative elements that, together with associated activities and resources, provide stability and meaning to social life…  Institutions are transmitted by various types of carriers, including symbolic systems, relational systems, routines, and artifacts. Institutions operate at different levels of jurisdiction, from the world system to localized interpersonal relationships. Institutions by definition connote stability but are subject to change processes, both incremental and discontinuous”… (Scott, 1995)  Institutions are social structures that are constructed by humans to provide stability and meaning to life. They are the ‘rules of the game’ that both enable and constrain human behaviour. 3

4. Examples of Institutions…  Organisations  Companies  Industry  Universities  Marriage  A class room  A household  Religions / Church / Mosque 4

5. Pillars of Institutions Pillars RegulativeNormativeCultural-Cognitive Basis of compliance ExpedienceSocial ObligationTaken-for grantedness shared understanding Basis of orderRegulative rulesBinding expectations Consultative Scheme MechanismsCoerciveNormativeMimetic LogicInstrumentalityAppropriatenessOrthodoxy IndicatorsRules, Laws, Sanctions Certification, Accreditation Common beliefs Shared logic of action Basis of legitimacyLegally sanctioned Morally governedComprehensible. Recognizable, Culturally Supported Institution constraints organisational activity through three different dimensions: Source: Scott, 2001 5

6. New Institutional Theory  What makes organisations so similar?  ISOMORPHISM  Coercive, Mimetic, Normative  Organisational Isomorphism increase with:  Resource centralisation and Dependency  Goal ambiguity and technical uncertainty  Professionalisation  Structuration  WHY? To be viewed legitimate Source: DiMaggio and Powell (1983) The Issue of Decoupling: What is appropriate become more important than what is consequential Legitimate behaviour is appropriate behaviour 6

7. Institutions and Legitimacy  Organizations require more than material resources and technical information, they also need social acceptability and credibility (Scott et al. 2000)  Example of legitimacy:  Input Legitimacy and Output Legitimacy (Botzem & Dobusch, 2012) (e.g : IFRS)  Technical Legitimacy (e.g : ISO)  What can improve legitimacy:  Due process  Legal Support  Endorsement from professional  Diffusion of adoption by industry 7

8. How Institutions Response to pressures? Oliver (1991) Framework  Strategic Response to institutional pressures  Aquiescence  Compromise  Avoidance  Defiance  Manipulations  Oliver (1992) discussed “deinstutionalization”  Oliver (1991) framework is popular in organisational studies to analyse organisations with coercive pressures to change.  The concept of deinstitutionalization has been used by Lawrence & Suddaby (2006) to develop Institutional Work Theory. 8

9. Institutional Logic The term “institutional logic” was introduced by Alford and Friedland (1985) to describe the contradictory practices and beliefs inherent in the institutions of modern western societies. Core institutions of society : Capitalist market, bureaucratic State, Family, Democracy and Religion, - each has a central logic that constraints both means and ends of individual behaviours. An institutional logic is the way of particular social world works. IFRS is an accounting standard, which is a socially constructed product as a result of political struggle of interested actors. Does IFRS has logics? What are the logics of IFRS? 9

10. Institutional Logic  Usually used to describe institutional change in a micro level analysis  Used extensively in management accounting case studies  Sometime can become a paint brush term where people use “institutional logic” without a deeper understanding  Institutional logic is not very easy to find.  New development of this theory is “hybrid logic” and “ situational logic”  Example of institutional logics for the case of the privatisation of public company’s: Public Service, technical efficiency, commercialisation. 10

11. Institutional Entrepreneurship (DiMaggio, 1998 ; Battilana, Leca, Boxenbaum : 2009)  Who Change Institutions?  The Paradox of Embedded Agency : Can an Individual really change an institution?  Yet many evidence : Gandhi, Martin Luther King, Elvis Presley, Sir David Tweedie,  How to distinguish Institutional Entrepreneur and just key actors?  Institutional Entrepreneurship (DiMaggio,1988): activities of actors who have an interest in particular institutional arrangements and who leverage resources to create new institutions or to transform existing ones’ (Maguire, Hardy & Lawrence, 2004) 11

12. Institutional Work  Institutional Work (Lawrence and Suddaby, 2006; Lawrence, et.al 2009)  Institutional work represents a new idea connecting, bridging and extending the work of institutional entrepreneurship, institutional change and innovation and deinstitutionalisations (Lawrence et al., 2009)Lawrence et al., 2009  Institutional work : “the purposive action of individuals and organisations aimed at creating, maintaining and disrupting institutions ”. (Lawrence and Suddaby 2006) (Lawrence and Suddaby 2006)  Institutional Work used three categories: Creating Institutions, Disrupting Institution and Maintaining Institutions  Focus on the work and actions of actors which change institutions.  Some case studies of institutional work are focusing on “creating” institutions  Usually are used at organisational level or field level of study 12

13. Boundary Work as Institutional Work  Boundary Work : The process by which actors construct, erode and bridge boundaries (Gieryn, 1999)  Domain extension can be seen as boundary work, where professionals try to open a new domain or extend their domain into a new one. (See Suddaby, et al. 2015)  Occupational Boundary Claims by professions are typically constructed through :  Associated claims to class  Exclusive Knowledge or Technical Expertise  Power that become formalise through regulations. 13

14. World Society Theory  World Society Theory (Meyer, 1997 ; Drori 2003; Drori et al., 2006)  World society theory sees globalisation as more than intense worldwide transaction but also includes an additional conceptual shift towards the universal, and is thus a cultural process in addition to being an economic and political process  Sociological theories  Modernization theory  World Systems Theory (WST) / dependency theory  World polity theory (WPT) / institutional theory World Society Theory see the world as a “village” with its own culture and polity. Globalization are the result of people adopting the “world culture” 14

15. How Institutional Theory can help your research 15

16. How Institutional Theory Help The Research of Islamic Economics/Finance/Accounting  By using institutional theory, the research may appeal to a larger audience, those who don’t know anything about Islamic banking or other IFI.  Islamic Economics/Finance/Accounting is relatively new concept, thus it offers fertile research ground for institutional research.  IFIs has different logics than other conventional institutions. Bring this uniqueness to a broader audience may increase wider interest in the research area.  Institutional Theories are still developing, so many opportunities to contribute to the theory and to the debates. 16

17. How Institutional Theory Help The Research of Islamic Economics/Finance/Accounting  At Macro Level :  A Study about the rise of AAOIFI adoption : can use world society theory  A study about the adoption of AAOIFI standard in one particular country: can use institutional work and world society theory  A study about organisational response to the new rule : Use Oliver framework.  As Meso Level  A study about the new breed of professionals in Islamic finance : Can use boundary work  A study about the new regulations in Islamic finance : can use institutional work and institutional logics  At Micro Level  Institutional Change: Case study of Islamic institutions (IFI, charity organisation, social enterprise): use institutional work theory or institutional entrepreneurship.  A Study about the role of shariah board in an IFI : decoupling, institutional isomorphism, legitimacy theory. 17

18. How Institutional Theory Help The Research of Islamic Economics/Finance/Accounting  What do you want to study?  Actors within an institutions?  Institutional change?  Institutional behaviour?  The evolution of institution at micro level?  The evolution of professional field at meso level?  How a new domain is created or expanded?  How an institution die?.... Too much success stories and not so many failure stories  What do you want to accomplish as an outcome?  Heavy theoretical contribution  Heavy empirical contribution 18

19. An example from Ersa’s research 19

20. Different forms of institutional work re the adoption of IFRS 20 Disruptive Work Undermining the ‘localism’ logic of the old accounting standard Disrupting the full adoption of IFRS Prohibiting the continued use of US GAAP Creating Work IFRS as a high quality accounting standard: Image-making processes Reconfiguration of belief systems The creation of a competition logic Maintaining Work Resisting IFRS and maintaining US GAAP Maintaining the IFRS adoption decision: Reinvented the new actors Maintaining full IFRS adoption Institutional work : “the purposive action of individuals and organizations aimed at creating, maintaining and disrupting institutions ”. (Lawrence and Suddaby 2006) (Lawrence and Suddaby 2006) Institutional work represents a new idea connecting, bridging and extending the work of institutional entrepreneurship, institutional change and innovation and deinstitutionalisation (Lawrence et al., 2009)Lawrence et al., 2009

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22. References Battilana, J., Leca, B and Boxenbaum, E. 2009. 2 How Actors Change Institutions: Towards a Theory of Institutional Entrepreneurship. The Academy of Management Annals, 3, 65-107. Botzem, S., & Dobusch, L. (2012). Standardization cycles: A process perspective on the formation and diffusion of transnational standards. Organization Studies, 33(5-6), 737- 762. DiMaggio, Paul J., and Walter W. Powell 1983. “The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields,” American Sociological Review 48:147-60. Drori, G. S. (2003). Science in the modern world polity: Institutionalization and globalization: Stanford University Press. Drori, G. S., Meyer, J. W., & Hwang, H. (2006). Globalization and organization: World society and organizational change: Oxford University Press. Lawrence, T. B. & Suddaby, R. (2006) 1.6 Institutions and Institutional Work. In: Clegg, S. R., Hardy, C., Lawrence, T. & Nord, W. R. (eds.) The Sage Handbook of Organization Studies. London: Sage,pp.215-254 22

23. References Lawrence, T. B., Suddaby, R. & Leca, B. (2009) Institutional Work: Actors and Agency in Institutional Studies of Organizations. New York: Cambridge university press. Meyer, John W. and Rowan, Brian (1977)‘Institutionalized organizations: Formal structure as myth and ceremony’. American journal of sociology 83: 340– 363. Meyer, J. W., Boli, J., Thomas, G. M. & Ramirez, F. O. (1997) World Society and the Nation ‐ State. American Journal of Sociology, 103(1), pp.144-181. Oliver,C. (1991) Strategic responses to institutional processes. Academy of Management Review. Vol.16 (1) : 145-179 Scott, W. Richard 1995. Institutions and Organizations. Thousand Oaks, CA: Sage Suddaby, R., Saxton, G.D. and Gunz, S., 2015. Twittering change: The institutional work of domain change in accounting expertise. Accounting, Organizations and Society, 45, pp.52-68. 23

24. Thank You 24