Defending Organizational Legitimacy after Enron: The Symbolic Use of Stock Option Accounting

David Strang, Richard Swedberg, Michael LounsburyThis paper examines the forces driving the adoption of an accounting practice, stock option expensing (SOE), among the Fortune 500 in the wake of the recent corporate scandals. I argue that in the ensuing debates and challenges to the legitimacy of existing institutional frameworks governing corporate behavior, SOE became a symbol of normative legitimacy and a way for organizations to defend against threats to their own legitimacy. In analyzing the effects of different types of legitimacy threats, the results indicate that organizations in industries that were under intensive levels of investigation were more likely to adopt SOE, but that negative media scrutiny and shareholder activism did not influence SOE adoption. The results also suggest that as the Financial Accounting Standards Board threatened to require SOE, the significance of the practice as a symbol of normative legitimacy began to diminish. The findings broaden and deepen our understanding of how organizations engage in symbolic practice adoption to defend their legitimacy as well as the processes shaping the social construction of accounting practices. This paper also provides empirical support for recent theoretical claims regarding legitimacy defense and expands upon recent work that has made links between the impression management literature and neoinstitutional theory