Holier than Thou? Identity Buffers and Adoption of Controversial Practices in the Islamic Banking Category

Abstract

Existing scholarship on categories has frequently highlighted how some category members violate codes that others diligently abide by. In this paper, we consider differences in identity across category members, and ask how these relative differences determine their response to a code-violating change. Taking a case where category members are identified as “insiders” and “outsiders,” we argue that insiders’ reaction to a code violation depends upon the extent to which they believe their identity is distinct from the code violator’s, who might be an insider or an outsider. We suggest that it is the presence or absence of an “identity buffer”—i.e., a relative identity advantage—that determines insiders’ reaction. We hypothesize that when a fellow category insider introduces a code violation, the focal insider will be more likely to refrain from the practice. When an outsider introduces the violation, insiders will be more likely to adopt the violation provided they can retain an identity buffer. We posit that when outsiders adopt code-preserving behavior, thus narrowing the identity buffer between insiders and outsiders, it will mitigate insiders’ likelihood of code violation adoption. We find support for our hypotheses using data on the Islamic banking industry in 12 countries (2003–2014).