Institutional Theory: Its Role in Financial Accounting Practices

This essay provides a comprehensive overview of institutional theory within the context of financial accounting. It delves into the theory's purpose, highlighting its role in understanding how social, economic, and political systems influence business operations and legitimacy. The essay explores the core concepts of institutional theory, including the pressures and expectations exerted by various institutional constituents. Furthermore, it discusses the significance of both old and new institutionalism, examining their impact on organizational studies and the adoption of formal company structures. The analysis extends to the roles and responsibilities associated with institutional theory, emphasizing its capacity to reduce operational costs, manage risks, and foster innovation. The conclusion reinforces the importance of institutional theory in managing external environmental factors and enhancing organizational performance. Desklib offers a variety of resources, including past papers and solved assignments, for students seeking further insights into this topic.

Financial accounting
theory

Table of Contents
Topic – Institutional Theory.........................................................................................................................3
Introduction ................................................................................................................................................3
Main Body ...................................................................................................................................................3
Purpose .......................................................................................................................................................3
Role & Responsibilities ................................................................................................................................4
References ..................................................................................................................................................7

Topic – Institutional Theory
Introduction
Institutional theory mainly focus on the specific role which are related with the social,
economical and also political system in which most of the companies can effectively operate
their business & obtain their legitimacy. It is analyzed that pressure & expectations can be easy
expected by the effective institutional constituents like state, interest, public , family & also
interest group. Institutional theory is considered as the specific approach which can help to
maintain the clear understanding about the organization & also management practices related
with the product of social and state of economic pressure. It determines specific popular
prospective related Management Theory because this theory is helpful to maintain the
organizational behavior which defies the economic rationality. This report will discuss about the
significance of institutional theory along with its purpose, roles & responsibilities (Chu and et.
al., 2018).
Main Body
Purpose
Institutional theory is a study of deep and resilient features of the organizational structure. It
takes into account the process through which various rules, norms, schemes and routines can be
embraced in the behavior of firm. Basically Institutional Theory was recognized by the John
Meyer & Brian Rowan in the late year 1970. This theory is helpful to explore the effectiveness of
the organization and also helpful to identify that how organization is fit in context of the societal,
national , state & also global environment. This theory is useful to maintain the adoption &
spread related to the formal company structure which associated with the written policies, new
forms and standard practices. Institutional theory determined that institutional environment can
affect strongly & also influence the growth of the formal organizational structure (Dubey and et.,
al., 2019). On the basis of this, they decides whether the business should be started or not and the
extent of its success rate. Through this it can also be said that , the entrepreneurs tries to tap the
opportunities prevailing in the market. It further supports the mindset that the upcoming of

various new organizations depends upon the group from the they belongs or the environment
they face.
Role & Responsibilities
The role of institutional theory is more because it can useful to provide the specific basis of
systematic analysis related with the innovation, utilizing the theoretical contribution and
implications about the distinction between the informal & formal institutions, normative, cultural
& regulative kind of institutions & also various level of institutions are considered in order to
maintain the each & responsibilities related with the Institution theory. It helps in examining the
environmental conditions for the establishment of new firms. If applied properly, this theory
holds the power to reduce various costs incurred in operations and can also control the
uncertainty and risks for the business. On contrary, the loop holes in its implication can lead to a
mismanaged structure with the presence of corruptions and conflicts among members. It also
develops the knowledge about the capacity of firm in recovering from its losses, continuing its
products availability to the customers and handling of estimated threats.
Trends of Institutional Theory .
There are 2 kind of dominant trends related with the Institutional theory which are given below - Old institutionalism
 New institutionalism
It is determined that these type of trends are helpful in emerging the perspective in term of
organizational studies & sociology that mainly turn in " new Institutionalism" which many reject
the specific model named as rational actor model of the classical economics. Instead of it, the
theory that the specific cognitive & cultural explanation of the organization phenomena & social
consideration. Property related with supra - individual related unit which can helpful to reduce
the affective aggression and also consequences which provide direct impact on the individual on
their attributes and also motives (Krell, Matook and Rohde, 2016).

This theory is mainly confirmed about the organization & maintains the deeper & also resilient
aspects of the social structure. Computation of theory similar as the proper in which and its
structure includes some activities with their related with rules, regulations, norms, routines &
also schemes. Institutional theory is computer as the recording concept forever company because
it's key stakeholders are play a crucial role in order to determine the specific legitimacy of the
company and maintain the much power related with the operational & organization.
Institutional theory generally emphasizes some environmental factors which can influence the
organization directly. In context of this theory, every activities can be managed in an appropriate
manner so that company can effectively present the organizational paradigm, maintain
management operations paradigm and also combined manage the impact of external factors
which can mainly contributing in the organization in context of both perspective (Sherer,
Meyerhoefer and Peng, 2016).
This theory mainly includes the specific economic, political and also social dynamics.
This theory is considered as the art of the theory in which nature of the art & also objects can be
containing as the art of the institution which is also known as the art of the World.
Challenges in different economies
Companies in different working environments reacts in different manners, even though
they are stuck in similar type of challenges. Variation in the external scenario like poolitical,
economic, social and more imapcts the actions taken by number of firms. Support from
institutional structure can help them in performing efficiently.
Conclusion
The main purpose of this assessment is to focus on the institutional theory which is
considered as the most prominent theory related with the financial account. This report discuss
about the purpose of institutional theory and also roles and responsibilities of institutional theory
to the organization can effectively manage the impact of external environmental factor and
maintain their performance & gain more profitability rate. It also helps in managing the costs,
risks and uncertainty in organizational operations.

References
Chu, Z., Xu, J., Lai, F. and Collins, B.J., 2018. Institutional theory and environmental pressures:
The moderating effect of market uncertainty on innovation and firm performance. IEEE
Transactions on Engineering Management, 65(3), pp.392-403.
Dubey, R., Gunasekaran, A., Childe, S.J., Blome, C. and Papadopoulos, T., 2019. Big data and
predictive analytics and manufacturing performance: integrating institutional theory,
resource‐based view and big data culture. British Journal of Management, 30(2),
pp.341-361.
Krell, K., Matook, S. and Rohde, F., 2016. The impact of legitimacy-based motives on IS
adoption success: An institutional theory perspective. Information &
Management, 53(6), pp.683-697.
Sherer, S.A., Meyerhoefer, C.D. and Peng, L., 2016. Applying institutional theory to the
adoption of electronic health records in the US. Information & Management, 53(5), pp.570-580.