Institutional Investment Patterns in Troubled Corporations: A Sociological analysis

In: The American journal of economics and sociology, Band 52, Heft 3, S. 291-306

Abstract

Abstract. Classical or neo‐classical economic theories do not adequately explain institutional investment patterns in troubled corporations. Macroeconomic perspectives contend that abstract market forces direct investment capital away from troubled companies, and that bankruptcy weeds weak firms out of the economy for the general good. Microeconomic perspectives focus on the seemingly autonomous decisions of firms and their managers, where bad management leads to troubled and bankrupt firms and a corresponding loss of investment in these companies. Neither perspective is useful for understanding recent patterns of institutional investment. A more critical, sociological perspective for understanding these investment patterns has two main threads. First, investment activity is embedded in more general social relationships and cannot be understood strictly on "economic" grounds and with "economic" ideas. Second, social power—rather than abstract market forces—is critical in fostering specific investment patterns. More specifically, the organizational power of large financial firms may be the pivotal factor shaping investment patterns in troubled companies. Recent case studies of troubled and bankrupt corporations demonstrate the usefulness of this more sociological perspective, and suggest areas for future research.