2
However, left largely unexamined is the assumption that this consolidation occurred through the
elimination of financially weak banks by financially strong banks.
Although studies on mergers have done much to advance our understanding of those
organizational characteristics associated with being the target of merger or the acquirer in a merger
(e.g. see Palmer, et al. 1995; Trautwein 1990), little has been done to understand the conditions under
which mergers take place for both the acquiring organization and the target organization of mergers.
1
Based on neo-classical economics, one would assume that, given the deregulation that has taken place
in the banking industry, the acquiring banks are financially strong, while the target banks are
financially weak. However, using sociological insights gained from organizational theory to guide our
understanding of organizational change, I develop an alternative explanation of consolidation in the
banking industry. This explanation hinges on the application of institutional theory and resource
dependence theory to the question of bank mergers, suggesting that mergers happen when merger is
legitimated as a strategy for banks to pursue and when both the acquirer and target banks in a merger
face external crises of uncertainty and internal financial crises. The past thirty years a particularly
pragmatic time to examine bank mergers as banks have been embedded within a competitive political-
economic environment, marked by tremendous deregulation and the relaxation of rules of merger (see
Table 1). This paper examines mergers in the banking industry, between 1976 and 1998.
2
Theory
Both institutional theory and resource dependence theory emphasize the importance of the
environment to organizational survival, with survival being the ultimate goal of any organization.
However each theory proposes its own conceptualization of the environment, with institutional theory
focusing upon the cultural aspects of the environment and resource dependence theory focusing upon
power relations in the environment. However, this difference may be reconciled by accepting that
organizations operate in environments that encompass cultural aspects as well as power arrangements.
I will discuss these theories in turn, with an emphasis upon combining them into an integrative
Convention