The Conditional Nature of Embeddedness: A Study of Borrowing by Large U.S. Firms,1973–1994

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.