Extreme institutional complexity and corporate combative strategy

Abstract

Research has conducted in-depth discussions on how firms strategically respond to institutional complexity. However, such research has yet to resolve the issue of how firms respond to the extreme institutional complexity, which is the extreme institutional conflict between a powerful stakeholder and another important stakeholder. In this situation, competing institutional demands within the organization could not bargain or simultaneously coexist, and the external public does not view the claims of another important stakeholder as legitimate. Accordingly, organizational response strategies in the existing literature cannot address the extreme institutional complexity. We propose that under extreme institutional complexity, the more salient the powerful stakeholder, the more inclined the firm to combat another important stakeholder. However, when the firm has established a connection with a powerful stakeholder, the firm will not incline to combat another important stakeholder. Our empirical results provide strong support for these arguments based on event system theory and using a natural experiment based on the responses of Chinese firms under an extreme institutional conflict. Thus, we contribute to the strategic responses of firms under institutional complexity and enrich the legitimacy theory.