Organized Illusions: A Behavioral Theory of Why Corporations Mislead Stock Market Investors (and Cause Other Social Harms)
University of Pennsylvania Law Review, Vol. 146, No. 2, 1998.
Posted: 20 Sep 1998
Date Written: December 1997
Abstract
The standard rational actor model of organizational behavior leads one to question why corporations would mislead the investing public when neither the company nor its managers were trading in securities. After a brief investigation of answers to this problem in traditional economic terms, this article seeks to use modern institutionalist theory on organizational behavior to argue that corporate belief systems can become "unrealistic" (and hence the source of possible corporate misrepresentations about its risks and future prospects) because of predictable distortions in information flow and, more importantly, perceptual biases among managers. The potentially adaptive role of bias in corporate cultures is considered, along with possible implications for securities law. The article then extends the account based on these cognitive and informational forces to other forms of socially harmful corporate behavior.
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