2.1 Institutional Theory
An explanation is needed for the phenomena of the willing but costly convergence to IFRS
undertaken by the selected ASEAN countries. To address these phenomena the perspective of
institutional theory is utilised by this article in the analysis of the convergence/harmonisation
issues. Institutional theory can provide explanations about organisational linkage with the
environment, social expectations and an organisations internal practices and characteristics
(Dillard et al. 2004).
Early organisational theory acknowledged the diversity of organisations, however,
others such as DiMaggio and Powell (1983), have since argued that once organisations
emerge as a field, the paradox of them becoming increasingly similar is evident. Institutional
theory has two main dimensions: isomorphism and decoupling. Isomorphism consists of
coercive factors, normative influences, and mimetic factors to explain this paradox of
homogenisation. Coercive isomorphism emerges from asymmetric power relationships.
Change is required by formal and informal sources, such as government regulation or
political pressure groups. Mimetic isomorphism stems from a powerful phase brought on by a
major event or incident. In uncertain situations actors, under standard circumstances, copy the
legitimatised practices from other actors in the field. Third, normative isomorphism emerges
upon the maturity of a certain practices, and is associated with professionalisation, where
members of defines their methods of work. Decoupling refers to the creation and
maintenance of gaps between formal policies and actual organizational practices (Meyer and
Rowan 1977).
Organisations within the selected countries may be seen as an institutionalised field,
which is defined as an established social order in relation to a set of rules and standardised
practices. The theory reflects on the effects of external expectations of a field and the
development of procedures, structures and practices within the organisational field as it seeks
to establish its legitimacy. Institutional theorists posit that organisations must be cognisant of,
and be responsive to, both their environments and external expectations of groups and
organisations (Di Maggio and Powell 1983, 1991; Meyer and Rowan 1977). Clegg (1989)
notes that the power of organisational actors must also be understood as an element in
organisational change. Thus understanding power and isomorphic pressures can assist by
providing social and cultural explanations for the IFRS convergence by organisations in the
selected countries. Finally Orru et al. (1991, p. 362-3)use institutional theory to explain how
selected East Asian businesses operate according to distinct models; and that institutional and
technical components need not be in conflict but can, ‘converge harmoniously’. Thus the
Orru et al. findings, analysed via institutional theory, might explain how Singapore and
Malaysia handled the impacts and tensions of IFRS may not lead to a loss of business
efficiency or effectiveness.