Contrasting Institutional Theory and Signaling Theory to Explain the Adoption Process of an Industry Standard

Voluntary management standards have become popular in many industries, but theories disagree about why firms adopt such standards. A central element of the debate concerns the extent to which managers exercise strategic rationale in making adoption decisions. Game theoretic models from economics suggest that managers anticipate future adoption to make adoption choices. New institutional theories suggest that managers consider the nature of previous adopters. Using data on the adoption of ISO 9000, we find that the predictive power of the models depends on the firm characteristic being considered, and that a combination of the two models best predicts observed adoption patterns.