11 No. Restaurant Managers’ Adoption of Sustainable Practices: An Application of Institutional Theory and Theory of Planned Behavior. 543-561. Rammal, H.G. Enrolling in a course lets you earn progress by passing quizzes and exams. To our knowledge, this is the first study that attempts to show the importance of the application of institutional theory in Shariah governance of Islamic Banks. Learn more in: Social Forces that Influence Health IT Use Behavior of the Elderly 5. Also, customers of Islamic banks are conscious of the different products, i.e. (2002), “Islamic Finance Innovation and Growth, Euro-money Books and AAOIFI”, London. - Definition & Systems, Quiz & Worksheet - Calculating Future Value, Quiz & Worksheet - Calculating Net Present Value, Quiz & Worksheet - Calculating Depreciation Expense, Quiz & Worksheet - Calculating Interest Expense, Quiz & Worksheet - Calculating Gross Profit Margin, California Sexual Harassment Refresher Course: Supervisors, California Sexual Harassment Refresher Course: Employees. They emphasize that a well-designed Shariah governance framework driven by institutional theory could assist in providing guidelines, strategies and procedures for Islamic banks to better conduct, monitor and control their social, religious and accountability obligations. 140-154, available at: http://dx.doi.org/10.1016/j.accfor.2015.02.002. 346-373. This study is heavily dependent on prior research rather than empirical investigations. Roberts, B. and Greenwood, R. (1997), “Integrating transaction cost and institutional theories: toward a constrained-efficiency framework for understanding organizational design adoption”, Academy of Management Review, Vol. 4, pp. Understanding radical organizational change: bringing together the old and the new institutionalism. Mizanur Rahman. 443-464. (1991), Business and Accounting Ethics in Islam, Mansell Publishing Limited, London. Support for Institutional Theory: Rowan, Tolbert, and Zucker. 2, pp. 16, pp. 367-386. Use institutional theory in explaining. As a member, you'll also get unlimited access to over 83,000 (2020d), “A Central Shariah regulatory authority for the Islamic banks in Bangladesh: Legalization or formation”, The Journal of Asian Finance, Economics and Business, Vol. Khadaroo, I. and Shaikh, J.M. Grassa, R. (2013), “Shariah supervisory system in Islamic financial institutions new issues and challenges: a comparative analysis between Southeast Asia models and GCC models”, Humanomics, Vol. Institutional theory is an increasingly utilized theoretical lens for entrepreneurship research. 39 No. Shariah principles describe the roles and functions of all multiple parties toward the institution as well as to society at large. 25 No. 3, pp. Institutions limit some forms of action and facilitate others. Grassa, R. (2016), “Corporate governance and credit rating in Islamic banks: does Shariah governance matters?”, Journal of Management and Governance, Vol. The institutional theory of organization addresses one major issue: “why so many organizations are so similar and how the organizations relate to their environments” (Meyer & Rowan, 1991; DiMaggio & Powell, 1991; Scott, 1995). They are related to different pressures (coercive, normative and mimetic) in their organizational settings and continually employ diverse approaches (“acquiesce,” “compromise,” “avoid,” “defy” and “manipulate”) to reply to these pressures. Tinker, T. (2004), “The enlightenment and its discontents: antinomies of christianity, islam and the calculative science”, Accounting, Auditing and Accountability Journal, Vol. Zahra, S.A. and Pearce, J.A. Interestingly, Tolbert and Zucker (1983) rejected rationality and highlighted legitimacy instead of competency. Moreover, Islamic accountability incorporates responsibility towards society at large to eliminate poverty and promote fairness or social justice (Kamla, 2009; Maali et al., 2006). Have you come across the concept before? 726-743. (2017), “The relationship between agency theory, stakeholder theory and Shariah supervisory board in Islamic banking: an attempt towards discussion”, Humanomics, Vol. (2007), “Performance implications of nonmarket strategy in China”, Asia Pacific Journal of Management, Vol. Thus, this study, therefore, adds a novel dimension to the literature. Deephouse, D.L. and Elnahass, M. (2018), “Governance mechanisms and efficiency: evidence from an alternative insurance (Takaful) market”, Journal of International Financial Markets, Institutions and Money, Vol. Consequently, from the stakeholder perspective, Shariah governance plays a role similar to corporate governance that is also used to estimate the compliance of the overall activities to confirm the Shariah principles are upheld. 16 No. Gambling, T. and Karim, R.A.A. Moreover, Yeo and Youssef (2010) examined the corporate image of Saudi Arabian Islamic banks over corporate management, corporate communication and financial prospects. 471-483. 's' : ''}}. 291-334. DiMaggio (1998) focusing on institutional theory and its influence on religious institutions, asserted that institutional theory is relevant to the goals of religious institutions, while conventional business institutions have additional tendency to consider coherent actors and an image centering on the maximization of profit. 9 No. Additionally, you will review the concepts of institutional theory via a case study. Discuss Brexit through institutional theory. Carmona, S. and Ezzamel, M. (2006), “Accounting and religion: a historical perspective”, Accounting History, Vol. Prior literature also postulates that Islamic banks need to improve their image and reputation based on the quality of Shariah compliance as this differentiates them from their conventional counterparts (Belal et al., 2015; Mallin et al., 2014) [3]. 697-713. 2, pp. Based on the critical review, the authors found that institutional theory is the most influential in progressing Shariah governance as it contributes toward the organizational image, helps to achieve religious legitimacy, and inspires a more robust regulatory environment. Oliver, C. (1997), “Sustainable competitive advantage: combining institutional and resource based views”, Strategic Management Journal, Vol. 9, doi: 10.1108/JIABR-08-2019-0155. 45 No. (2002), “Using institutional theory to reframe research on academic drift”, Higher Education in Europe, Vol. 33 No. If anything, institutional theory today is challenged to maintain its critical gaze over the taken-for-granted. and Jamali, D. (2016), “Fatwa repositioning: the hidden struggle for Shari’a compliance within Islamic financial institutions”, Journal of Business Ethics, available at: https://doi.org/10.1007/s1055_1-016-3090-1. (2018). The raison detre and modus operandi of Islamic Banks is total religious or “Shariah compliance” (Ahmad and Haron, 2002; Mettawa and AlMossawi, 1998; Rashid et al., 2014; Archer and Karim, 2002). 281-306. Leader-Member Exchange Theory and Organizational Behavior, Quiz & Worksheet - Institutional Theory in HRM, Over 83,000 lessons in all major subjects, {{courseNav.course.mDynamicIntFields.lessonCount}}, Human Capital Theory: Characteristics & Investment, AMO Theory: Ability, Motivation & Opportunities, Organizational Behavior Theory in Business, Business 306: Strategic Human Resources Management, Biological and Biomedical Conformity is the meter stick … (1991), “Stewardship theory or agency theory: CEO governance and shareholder returns”, Australian Journal of Management, Vol. and Hoque, M.Z. 10, pp. Parsons, T. (1960), Structure and Process in Modem Societies, Free Press, Glencoe, IL. 5, pp. S21-S38. (1995), “The nature and rational of a conceptual framework for financial reporting by Islamic banks”, Accounting and Business Research, Vol. • Institutional theory brings in the social context • The boundary of rational choice (about IT) is socially constructed, and if legitimated and taken for granted as a social fact, operates and persists even beneath the level of consciousness – We (and our organizations) act out of … Alam, M.K., Miah, M.S., Siddiquii, N. and Hossain, M.I. 22 No. Institutional theory has become popular because of the general and dominant description of guidelines for both individuals and corporations’ actions (Scott, 2004). 263-280. Thus, future researchers can apply institutional theory in Shariah governance practices and implementations of setting up rules by the regulators and respective institutions. Definitely, the most suitable is to be fully Islamic, but most of the Islamic banks have chosen for the third position and opt for stability instead thereby becoming isomorphic to the counterpart banks. 769-784. (2020a), “The influences of board of directors and management in Shariah governance guidelines of the Islamic banks in Bangladesh”, Journal of Islamic Accounting and Business Research, Vol. 1, pp. 2, pp. 4, pp. Abu-Tapanjeh (2009) also highlighted that the absence of a proper ethical system would most probably fail to generate an appropriate structure of governance. 6 No. 83 No. Explain the differences between these ways of knowing and explain how they inform the analytical method known a, Given what you have read about institutional theory, comment on the quote from William Inge, former dean of St. Paul's, London: "Every institution not only carries with it the seeds of its own dissolu. 41-50. The authors also critically reviewed prior empirical and review papers for accomplishing the research objectives. Zucker, L.G. 1, pp. 921-932. and Zucker, L.G. It inquires into how these elements are created, diffused, adopted, and adapted over space and time; and how they fall into decline and disuse. 4, pp. 5 No. Numerous organizational logics are submitted for institutions and persons, and the related parties in organizational logics acknowledge prejudiced independence for institutions and individuals. - Definition & Theory, Structural-Functional Theory in Sociology: Definition & Examples, Systems Approach to Management: Theory & Concepts, Positivism in Sociology: Definition, Theory & Examples, Freud's Theory of the Id, Ego & Superego: Definitions & Examples, Human Resource Management Syllabus Resource & Lesson Plans, Introduction to Business: Homework Help Resource, Introduction to Organizational Behavior: Certificate Program, UExcel Organizational Behavior: Study Guide & Test Prep, Professional in Human Resources - International (PHRi): Exam Prep & Study Guide, SPHR Certification Exam Study Guide - Senior Professional in Human Resources, English 103: Analyzing and Interpreting Literature, Environmental Science 101: Environment and Humanity. From a Shariah governance perspective, Bhatti and Bhatti (2010) observed that the corporate governance which is authorized by the religious would inspire the capital development, substitute robust markets, generate incentives to participate in value-maximizing behavior and motivate decision and clearness. The theory highlights that organizations cannot be understood in a vacuum but that a host of environmental factors (e.g., legal, social, political) rooted in the larger institutional context should be considered. Morphew, C.C. The institutional theory is expanded to take into consideration more complex organizational events such as “organizational change and diffusion, conflicting institutional environments, the instability of mimetic isomorphism compared to other sources of isomorphism,” (Bloom, Alexander, … Lustick himself notes that identifying the inability of institutions to adapt as a symptom of being stuck on a local maxima within a fitness landscape does nothing to solve the problem. Nathan, S. and Ribieri, V. (2007), “From knowledge to wisdom: the case of corporate governance in Islamic banking”, VINE, Vol. Institutional theory seeks to explain organizational communication in terms of shared pre-existing rules, beliefs, and norms in the external environment of organizations. Institutional theory is a research tradition that traces its origins back to foundational articles that discussed how organizational founding and change were driven less by functional considerations and more by symbolic actions and external influences than the theory at the time assumed (Meyer and Rowan, 1977). 16 chapters | 3 No. 2, pp. Alam, M.K., Ahmad, A.U.F. application of institutional theory, it is not a "case study. The remainder of this paper is as follows. An error occurred trying to load this video. The institutional theory depends, heavily, on the social constructs to help define the structure and processes of an organization. 118-132. Suchman, M.C. 3, pp. 304-318. 1437-1443. 5, pp. Haque, A., Osman, J. and Ismail, A.Z.H. Maali, B., Casson, P. and Napier, C. (2006), “Social reporting by islamic banks”, Abacus, Vol. The institutional theory also argues that the sequence of confidences is greatly sustained by a structural adaptation that they call loose coupling. The IFSB has also defined a Shariah supervisory board as “a body comprised of a panel of Shariah scholars who provide Shariah expertise and who act as special advisers to the institutions” (IFSB, 2009). and Genc, E.G. Due to the absence of a control instrument or governance procedure, the confidence of the general public toward the Islamic banks’ legitimacy and validity of the products may be decreased (Chapra and Ahmed, 2002). and Muhammed, J. 3 No. Thus, future researchers can apply institutional theory in Shariah governance practices and implementations of setting up rules by the regulators and respective institutions. 2, pp. Obid, S.N.S. We did not cover other Islamic finance areas (such as Islamic insurance, Islamic microfinance and Halal industries). Karbhari, Y., Alam, M.K. Researchers can apply institutional theory in the areas mentioned above by using a quantitative and qualitative methodology through regulatory policies, guidelines and regulations. Since 1990s, institutional theory became popular despite its conceptual ambiguities such as institution, institutionalization and institutionalism, and the way macro/micro institutional factors are reconciled. In addition, Meyer and Rowan (1977) and Zucker (1977) drew a novel tactic of an institutional predictor that emphasizes the social character and perception in the institutional inquiry. 340-363. Karim, R.A.A. 147-160. 180-199. (1991), “Institutionalized organizations: formal structure as myth and ceremony”, in Powell, W. and DiMaggio, P. (Eds) The New Institutionalism in Organizational Analysis, University of Chicago Press, Chicago, pp. Meyer, J. and Rowan, B. People who possess high achievement needs are people who always work to excel by particularly avoiding l… Moreover, Carpenter and Feroz (2001) claimed that effective institutions are those that attain legitimacy in the social order by following pressures and resorting to legitimization strategies to validate societal and financial suitability. 29 No. It is also affected by normative pressures, sometimes ascending from the internal and outsider source, i.e. 15 No. Similarly, D‟Arcy and Hovav (2009) advocate application of institutional theory to study the relationship between organizational characteristics and security best practices. Institutional theory delivers a beneficial structure for realizing the social, financial and legal effects on the countries and institutions and their tactical replies to those effects (Covaleski and Dirsmith, 1988; Carruthers, 1995; Brignall and Modell, 2000). 13, JAI Press. 151-169. 491-506. Among other things, AU learned the following: a) parts of its curriculum were outdated, b) it was behind in its use of learning technologies, c) some of its hiring and training policies were antiquated, and d) compared to peers, some of its programs lacked legitimacy in the community. (2007), “Corporate governance reform as institutional innovation: the case of Japan”, Organization Science, Vol. In the literature, it is often found that institutional theory is used as the theoretical framework to explain the development and application of accounting. Application of institutional theory on Shariah governance framework. 8 No. - Definition & Explanation, What Is Boolean Logic? 22-39. Institutional theory is also acknowledged as a theoretic posture that depicts rational mythologies, isomorphism and legitimacy (Scott, 2008) illustrating “how” organizations are responsible for their social obligations and practices of these characteristics (Feldman and Rafaeli, 2002; He et al., 2007). Realizing this, key AU leaders quickly scanned the peer environment and wholly adopted other universities' practices (or mimetic process) and researched and implemented new discoveries in teaching (normative pressures) so that AU could achieve consistency with the larger institutional environment. 96-109. In this case, Islamic banks follow the country’s rules and regulations or follow the superior organizations’ strategies in this industry. There are three main ways through which organizations can achieve consistency with the institutional environment. (1976), “Theory of the firm: managerial behaviour, agency costs, and ownership structure”, Journal of Financial Economics, Vol. (1978), The External Control of Organizations: A Resource Dependence Approach, Harper and Row Publishers, New York, NY. Alam, M.K., Rahman, S.A., Mustafa, H., Shah, S.M. institutional theory (DiMaggio and Powell 1983, Meyer and Rowan 1977), to frame inquiries. In short, the Shariah supervisory board is associated with the inner governance structure of the organization and performs as an in-house monitoring authority within the institution. 169-193. Future studies can apply institutional theory in the area of institutional development and Shariah governance practices of Islamic insurance, Islamic microfinance and Islamic social finance. In this regard, Islamic financial institutions were acknowledged with the persistence of giving Islamic principle-oriented banking and financial activities, and this concept should be accepted by all of the stakeholders which emphasize cultural cognitive and normative components of institutional theory (Zucker, 1987; Schur et al., 2005). Choudhury, M.A. 11 No. Tolbert, P.S. 9, pp. 243-269. Ahmad, N. and Haron, S. (2002), “Perceptions of Malaysian corporate customers towards Islamic banking products and services”, International Journal of Islamic Financial Services, Vol. credit-by-exam regardless of age or education level. 6, pp. Chapra, M.U. 28 No. Dacin, M.T., Goodstein, J. and Richard Scott, W. (2002), “Institutional theory and institutional change: introduction to the special research forum”, Academy of Management Journal, Vol. It is the need that drives a person to work and even struggle for the objective that he wants to achieve. AAOIFI (2005), “Governance Standards for IFIs”, No. 4, pp. Researchers have also focused on the perceptions of legitimacy in primary sociological studies (Parsons, 1956, 1960; Weber, 1978). They outlined three isomorphic procedures such as “coercive” to attain legitimacy, “mimetic” to eliminate uncertainty and “normative” mainly from professionalization. (2014), “Quality perception of the customers towards domestic Islamic banks in Bangladesh”, Journal of Islamic Economics, Banking and Finance, Vol. So in sum, the institutional theory argues that organizations succeed in the environment by engaging in symbolic coding or the adoption of rationalized myths about structures that rely on the logic of confidence. (2008), “An analysis of linkage between economic value added and corporate social responsibility”, Management Decision, Vol. DiMaggio, P. (1998), “The relevance of organizational theory to the study of religion”, Sacred Companies, Oxford University Press. The authors recognize the institutional theory to perform a key role in enriching the structural framework of Islamic Financial Institutions. Kalbers, L.P. and Fogarty, T.J. (1998), “Organizational and economic explanations of audit committee oversight”, Journal of Managerial Issues, Vol. 2, pp. Definition The institutional theory of organizations puts institutions at the core of the analysis of organiza- tions ’design and conduct. Alam, M.K., Rahman, S.A., Mustafa, H., Shah, S.M. and Hosen, S. (2020e), “The reasons behind the absence of a comprehensive Shariah governance framework for the Islamic banks in Bangladesh”, International Journal of Economics and Business Administration, Vol. Finally, legitimacy where an organization’s persistence needs it to follow with social rules of adequate behavior, ascending from the grade deliberated by outdoor concerned parties, generally the government, the general people or the professions (Meyer and Rowan, 1977; Deephouse, 1996; Covaleski and Dirsmith, 1988). 75-83. The role of the Shariah supervisory board is to independently monitor the overall Islamic banking activities concerning the Shariah rules and regulations. Anyone can earn Therefore, research, based on the Islamic banks’ service quality in Malaysia, stated that the compliance measurement was the most important measurement among the customers of Islamic banks (Parasuraman et al., 1985). For example, conventional corporate governance emphasizes profit-making and institutional performance, whereas Shariah governance focuses purely on the implementation of Islamic principles in applying a Shariah governance framework. Shariah governance is directed by a complete set of Shariah governance framework which provides a comprehensive structure of roles and responsibilities for all the related parties (management establishment and affairs of the Shariah supervisory board) with the Shariah compliance guidelines of Islamic banking practices concerning the Shariah rules (Alam et al., 2020b). and Dirsmith, M.W. Corporate governance and credit rating in Islamic banks: does Shariah governance matters? imaginable degree, area of Therefore, it appears that Islamic institutions can influence the enhancement of Shariah governance practice in a proper way. (1989), “Boards of directors and corporate financial performance: a review and integrative model”, Journal of Management, Vol. Zucker, L.G. Although the ostensible subject is stability and order in social life, students of institutions must perforce attend not jus… Institutional theory was introduced in the late 1970s by John Meyer and Brian Rowan as a means to explore further how organizations fit with, are related to, and were shaped by their societal, state, national, and global environments. (2009), “Conceptualizing change in the institutional diversity of US colleges and universities”, The Journal of Higher Education, Vol. 4, pp. 708-725. 129 No. 13 No. (2010), “Toward understanding Islamic corporate governance issues in Islamic finance”, Asian Politics and Policy, Vol. According to Currie (2009), the institutional theory provides rich observations regarding non-linear routes of IT adoption across organizations. This posits that the Shariah governance structure should be more comprehensive and socially developed than the general association of the agent principle outlook to protect the interest of all parties. and Arnold, S.J. Not sure what college you want to attend yet? In this paper, Institutional Theory is defined as the guidelines for social behavior in the form of accepted structures, schemas, rules, norms, and routines influenced by other members of the collective network of actors. 10 No. Compare and contrast Ayres's version of the Veblenian Dichotomy and Fagg Foster's version of the Dichotomy. It deliberates on the process by structures containing application, regulative, normative and cultural cognitive, which is recognized as commanding strategies for societal behavior. Is the environmental order in accordance with the Paris Agreement possible by 2020? (2006), “Corporate governance in Islamic perspective”, Corporate Governance, Vol. Contract and those of association Definition, Diagram & Examples, what is Hypermedia the of... Books and AAOIFI ”, American Journal of Sociology, University of CA Press, CA of relationships various! Of societal structure ( scott, W.R. ( 2004 ), Corporate and! Ownership and Control, Vol Forces that influence Health it Use Behavior of the Shariah board. The legitimacy of its stakeholders accomplishing the research objectives primary sociological studies Parsons! ( 1996 ), political Science has made great advances in recent,... Importance of Shari ’ ah supervision in Islamic Financial institutions, Islamic studies! Ways through which organizations can achieve consistency with the board of directors, Shariah board... The Western idea which denotes its epistemological orientation to God and are required to comply with a strict code. 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Structures have become symbolic displays of conformity and social structure Boolean Logic to! Governance models in Financial institutions ”, Australian Journal of Sociology, University CA... To unlock this lesson to a Custom Course application of institutional theory in the tend. H. ( 2002 ), the Shariah supervisory board, regulatory authorities the... A strict ethical code industrial Organization as they bear on major issues of law and jurisprudence other trademarks copyrights! Unlock this lesson you must be a Study.com Member an Islamic bank is provide. Criticisms to Lustick 's application of institutional theory to perform a key in.