When does Main Street prefer Wall Street? Legitimacy, status, and decision-making

Abstract

PurposeWhen and why do organizations prefer high-status exchange partners? While past work has focused on status as a signal to the marketplace, this study shows that actors use the selected organization's status as a signal to legitimate their own selection decision.Design/methodology/approachThe context of the study is the selection of investment banks by local governments in the United States for the purpose of selling municipal bonds to investors. Hypotheses were developed through interviews with participants in the public and private sectors and were then tested using generalized estimating equations (GEEs). The models include 6,720 selection decisions nested within 1,032 local governments.FindingsInterview data reveal that governmental decision-makers struggle with interdepartmental conflict and are concerned about the perceived legitimacy of decisions in the “political arena”. The quantitative results confirm that with respect to selection decisions, the social context of the local government matters. Specifically, racial/ethnic heterogeneity, political competition and functional complexity—contexts where actors must signal independence and objectivity in decision-making—are each associated with an increased likelihood of retaining a high-status investment bank.Originality/valueThe study shows that a preference for a high-status partner is not just market driven. Rather, it emerges also from the legitimacy demands of the organization's own participants. More broadly, the study reveals how organizational decision-making—even that pertaining to the external market environment—is embedded in an organization-specific social reality.

The dynamics of organizational reputation and status: momentum and volatility

“…Theory and hypotheses Reputation and status Organizational reputation and status are similar yet distinct variables, serving as signals conveying information about the organization and its products or services (Altura, 2020;Cao and Smith, 2020;Jensen and Roy, 2008;Podolny, 2005). They affect the audiences' actions and reactions towards the organization, which in turn influence the organization's behavior and performance.…”

“…Organizational reputation and status are important constructs constituting the audiences' perceptions about organizations. When an organization tries to initiate an exchange relation, its reputation and status provide its potential partners crucial information about the organization, "signaling" the quality of its products or services (Altura, 2020;Cao and Smith, 2020;Jensen and Roy, 2008;Podolny, 2005). Thus, prior research has found that better reputation and higher status are associated with greater access to critical resources and better organizational performance (see Lange et al, 2011;Pollock et al, 2019;Sauder et al, 2012 for reviews).…”

Dimensiones de la legitimidad organizativa en función del género y el estatus de los consumidores

“…También se ha analizado el estatus a la hora de tomar decisiones en relación a un socio para la empresa. Se ha observado la preferencia por un socio de alto estatus, que no es sólo impulsada por el mercado, sino que es por la demanda de legitimidad de los propios participantes de la organización (Altura, 2020). Los empleados con bajo estatus son más propensos a aceptar una fusión de empresas frente a empleados de alto estatus (Terry y O'Brien, 2001).…”

Understanding the relationship between university characteristics and prestige

“…As a social judgment, though, prestige lies in the eyes of the beholder (Bitektine, 2011). It is formed by the collective experiences of stakeholders that an actor engages with Altura (2020) and Kakkar et al (2020). These stakeholders may evaluate organizations based on various features of their identity, depending on their preferences and desires for the organization (Jensen et al , 2011).…”