Learning Not to Diversify: The Transformation of Graduate Business Education and the Decline of Diversifying Acquisitions

• In Event: 388 - Section on Organizations, Occupations and Work Paper Session. Organizational Culture and Institutional Logics

Abstract

The decline and fall of diversification as legitimate corporate strategy occurred slowly in the United States. We argue that changes that occurred in a closely related field—graduate business education—were important in understanding the slow pace of de-diversification. Institutional changes cannot occur without changes in key decision-makers in organizations. Graduate education constitutes an important institutional field that shapes the views of students who later become key decision-makers in large organizations. Changes in the contents of graduate business education—specifically, the rise of agency-theoretic logic in the MBA curriculum in U.S. business schools in the 1970s—altered the students’ view about corporations and diversification strategy. Nearly twenty years later, these MBA graduates rose to the top decision-making positions and de-diversified American corporations. We therefore argue that the institutional change in one field (i.e., business education) resulted in changes in another field (i.e., corporate diversification), albeit with a considerable time lag. Using the data from CEOs who ran U.S. corporations in 1985-2005, we show that CEOs who earned an MBA degree before the emergence of the agency logic actively engaged in diversifying acquisitions, whereas the next generation of CEOs who absorbed the agency logic abandoned diversification strategy. Furthermore, we demonstrate that the two groups reacted differently to various contextual factors when making diversification decisions. In particular, the CEOs who earned an MBA after the rise of the agency logic were receptive to both internal and external monitoring, reflecting their acceptance of the agency-theoretic financial orthodoxy.

Authors

• Jiwook Jung, National University-Singapore

• Taekjin Shin, University of Illinois at Urbana-Champaign