Founding Teams as Carriers of Competing Logics: When Institutional Forces Predict Banks' Risk Exposure

Through archival data from 225 local banks founded between 2006 and 2009, as well as interviews with 73 bank founders, this paper explores the influence of founders' institutional logics, specifically financial and community logics, on the degree of risk taking in the organizations they found. Local bank founders steeped in a financial logic see the bank as an investment vehicle and seek to maximize profits, while those motivated by a community logic are driven to meet community needs and focus less on profits. Despite demands from regulators and consultants that promote uniformity of operations, variation exists in banks' risk strategies that seems connected to values and taken-for-granted predispositions inherent in such institutional logics. But such a connection is empirically demonstrated only in banks with larger founding teams. In those, increased internal representation of a financial logic is associated with higher use of risky deposit instruments to finance rapid asset growth, while a higher representation of a community logic is associated with lower use of such risky instruments. Furthering research on hybrid organizations that combine competing logics, this paper suggests that individuals are more likely to be the carriers of institutional influences especially when operating collectively in larger teams, in which one expects more group conformity and diffusion of responsibility. In smaller teams, individual discretion is more likely to dominate institutional forces.