The Contingent Nature of Public Policy and Growth Strategies in the Early Twentieth-Century U.S. Banking Industry

by Christopher Marquis & Zhi Huang

Overview — The effects of public policy on organizations and economic activities have been widely observed. This line of research has contributed to organizational theory by showing the importance of state action for constructing economic systems, as well as firm structures and strategies. But there are a number of reasons why this perspective may in fact overemphasize the importance of public policy. This working paper, forthcoming as an article in the Academy of Management Journal, more fully investigates the contingent nature of the effects of policy on organizations, with the orienting premise that policy is just one of the external conditions that organizations face, and policy effects are more or less powerful to the extent that they are interactive with other elements of the environment. Specifically, the authors focus on how policy that regulated bank branching and other environmental factors affected—independently as well as interactively—the emergence and growth of large-scale firms in U.S. commercial banking from 1896 to 1978. Key concepts include:

  • The histories of firms' external environments may be essential to an understanding of their structure and current success, with implications for organizational theory.

Author Abstract

While effects of public policy are one of the foundations of organizational theory, less explored is how these effects may depend on other external environmental factors. We focus on how policy is a necessary, but not sufficient, condition to understand the growth of banking in the U.S. states, 1896-1978. Three characteristics of banks—simultaneous production and distribution, pooled intra-organizational coordination, and agency relationships—result in a trade-off between centralized and dispersed growth strategies. Which strategy prevails depends on how policy enabling branching interacts with technological, economic, and cultural environments. Our findings contribute to understanding the contingent effects of policy on organizations and the rise of large corporations in the twentieth century.

Paper Information