The ties that bind: strategic actions and status structure in the US investment banking industry

Abstract

We applied Giddens' (1979, 1984) structuration theory to investigate the US investment banking industry and found support for the notion that industry network structure impacts the strategic actions of the firms embedded in it, and that the status hierarchy component of the industry structure is reproduced by the dyad-level interactions of firms in this industry. Investment banks conform to the homophily phenomenon -- they tend to transact with others in the industry of similar status. Status ranking also enables high-status banks to maintain an extensive exchange relationship with other banks, while status ranking constrains low-status banks to transact repeatedly with banks with which they have previously transacted.

Descriptors: alliances, structuration, status, strategic actions, industry structure, homophily

Introduction

The question of how managers' or firms' actions relate to the social structures within which their actions take place underpins key issues in strategic management research (Bouchikhi et al. 1997; Hitt and Tyler 1991), partly because a direct extension of this question leads to one of the fundamental questions in strategic management research: What is the import of human agency, expressed as managers' and firms' strategic actions, to organizational outcomes? The criticality and persistence of the action-structure problem in management research is demonstrated in calls for synthesis of action and structuration theories (Bouchikhi et al. 1997; Bourgeois 1984; Hitt and Tyler 1991; Hoskisson et al. 1999; Hrebiniak and Joyce 1985; Hrebiniak et al. 1988). There is still no consensus on how to relate agency to structure. Rather, prior attempts to synthesize action and structure have drawn on a diverse, disjointed set of theoretical perspectives, such as strategic decision models (Hitt and Tyler 1991; Hrebiniak and Jo yce 1985), strategic choice theory (Child 1997), chaotic organizational action (Thietart and Forgues 1997), postmodern feministic organizational theory (Knights 1997), and structuration models of technology (Barley 1986; Orlikowski 1992). These efforts have not contributed to fostering a consensual synthesis of action and structure. Rather, the inconsistent findings and conclusions from prior action-structure research have prompted some researchers to claim that the concern for action and choice is a fatal distraction. Challenging the usefulness of the action-structure concern, these researchers urge structural and functional determinism (Donaldson 1995, 1996). 'One must ask whether the contemporary structure-action approach is a framework that will prove fruitful, or whether it is just another broad programmatic statement which will not actually translate into a fruitful programme of empirical research' (Donaldson 1997: 88).

To date, efforts to achieve action-structure synthesis have typically led to process-oriented case studies (e.g. Alexander 1998; Barley 1986; Barley 1990; Barley and Tolbert 1997; Coopey et al. 1998; Pettigrew 1985; Riley 1983; Sydow et al. 1998; Sydow and Windeler 1998; Willmott 1987). This has led skeptics of the action-structure integration effort to question the fruitfulness of a qualitative approach: 'Any study committed to capturing action must study all the parties who are players in the on-going political process. Such exhaustiveness is difficult, given the emergent nature of process, which makes hazardous a priori specification of who is to be included. Thus any such study is liable to become prey to the criticism that it failed to study comprehensively enough the real parties in the interacting political action' (Donaldson 1997: 87). Critics prescribe a large-scale positivist quantitative analysis of data: 'The field of organizational structure has been quite intensively studied by scientific method s [i.e., quantitative statistical analysis] ... They may point the way to what will be discovered in other, younger topic areas of organizational studies' (Donaldson 1997: 90, the material in italics has been added).

In this study, we take up the challenges of Donaldson (1997) by applying Giddens' structuration theory (1979, 1984) to the action-structure duality. Our paper revolves around the following central research question: How do firm-level interactions among firms relate to network-level industry structure? In this empirical study, our findings suggest that the interfirm network constrains and enables dyad-level interfirm exchanges, and these interfirm interactions shape and reproduce the interfirm network in which the interactions occur. Our study contributes to the literature in three aspects. First, the relationship between firm exchanges and industry network structure is central to many streams of interfirm relationship research, such as the embeddedness perspective (Granovetter 1985), transaction cost theory (Williamson 1975), and the social/network capital approach (Coleman 1988; Gulati 1999). Our central research question provides insights on the process underlying interfirm exchanges, and how these exchange s reproduce embeddedness, governance structure and network capital. Second, we demonstrate that Giddens' structuration theory is not only useful for the study of interactions at the individual level, but is also fruitful for examining exchanges at the firm level. Third, we demonstrate that Giddens' structuration theory is not immune to quantitative statistical analysis. Our application of event history analysis on the interfirm alliance data contributes to the reduction in 'incommensurability' between qualitative and quantitative approaches in action-structure research (Weaver and Gioia 1994).