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Economic actors confront various forms of uncertainty in their decision making, and the ways in which they deal with these obstacles may affect their success in accomplishing their goals. In this paper, we examine the means by which relationship managers in a major commercial bank attempt to close transactions with their corporate customers. We hypothesize that under conditions of high uncertainty, bankers will rely on colleagues with whom they are strongly tied for advice on and support of their deals. Drawing on recent network theory, we also hypothesize that transactions in which bankers use relatively sparse approval networks are more likely to successfully close than are transactions involving dense approval networks. We find support for both hypotheses. We conclude that bankers are faced with a strategic paradox: their tendency to rely on those they trust in dealing with uncertainty creates conditions that render deals less likely to be successful. This represents an example of the unanticipated consequences of purposive social action.

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Economic and organizational sociologists have increasingly demonstrated that the actions of individuals and firms are affected by the social networks within which they are embedded. In recent years scholars have begun to recognize that the effects of these social networks may vary across populations or types of relations. This article examines the extent to which the effects of interfirm networks on the behavior of firms are historically contingent. Focusing on the level of debt financing among approximately 140 large U.S. corporations over a 22-year period, the authors show that the extent to which the firms' use of debt was influenced by those with which they were tied through director interlocks declined over time. The authors argue that this decline in the network effect reflected a shift in the institutional environment within which the firms operated, and that it was driven by three processes: the professionalization of the finance function within the firm, the internalization of financial decision-making, and the increased volatility of the environment. They conclude that corporate financing is socially embedded, but this embeddedness is historically contingent.

Over the last 100 years, the United States has experienced four waves of corporate merger activity. The first occurred at the turn of the century, then again in the 1920s, the 1960s, and the 1980s. Most research on merger waves has focused on individual mergers within a wave. Our research focuses on the wave itself. We develop a theoretical model that centers on the actors who promote the mergers and on those changes in the political and economic environments that provide the resources these actors need to act. Specifically, we argue that a permissive state combined with increased access to capital market funds encourages fringe players to initiate the innovations that enable them to execute mergers. Merger waves occur when these actors become increasingly successful and their innovations are imitated throughout the business community. We provide empirical support for the model using data from the 1980's merger wave. Article: Despite the general upward trend in the number of mergers following World War II (Reid 1968; Mueller 1992), over 50 percent of all merger activity in the United States in the last 100 years has taken place during one of four merger waves 1 These four merger waves occurred at the turn of the century, in the 1920s, the 1960s, and the 1980s (see Figure 1), and they have received considerable public and scholarly attention. Most of the research, however, has been limited to analyzing the behavior of individual firms: In what ways do participating firms differ from nonparticipating firms (Davis and Stout 1992; Haunschild 1993)? Was a merger profitable for the firm and its investors (Dewing 1921; Ravenscraft and Scherer 1987)? We take an entirely different approach. We are interested in the merger wave itself. Our question is: Why, at certain times in our economic history, does the number of mergers increase and then decrease so dramatically? We focus primarily on the actors who promoted the mergers and on the changes in the political and the economic environments that provide the resources these actors needed to act. PREVIOUS LITERATURE Most economists start with the assumption that mergers enhance efficiency (Manne 1965; Mandelker 1974; for an exception see Scherer 1988). Efficient market analysis has argued that mergers reduce the divergence between actual market value and the realizable worth of the corporate assets (Jensen 1984). When an outsider acquires a firm run by an "inefficient" management and disciplines, monitors, or replaces management, the acquiring firm is expected to realize a profit when its stock increases to reflect the improved situation. Contrary to the prediction of efficient market analysis, it is the target firms' stockholders, not the acquiring firms' stockholders, who benefit from higher stock prices (Malatesta 1983; Magenheim and Mueller 1988). In addition, studies have shown that mergers have a negative impact on acquiring firms' profitability (Mueller 1985; Ravenscraft and Scherer 1987). DuBoff and Herman (1989) suggested it is the actors promoting and executing the ...