Dormancy as a Strategic Response to Detrimental Public Policy

Organizations in democratic societies often encounter detrimental public policies that are later reversed through rather predictable political cycles. The standard organizational responses to detrimental public policies examined in the literature include exiting the market altogether, attempting to change the public policy through various political strategies, or passively complying with the policy. However, these responses might not be suitable when a detrimental policy is likely to be reversed. In this paper, I consider organizational dormancy, which entails a temporary reduction in an organization’s level of activity, as a viable alternative response. I propose that some organizations might be able to undergo a period of strategic inactivity in response to the onset of a detrimental public policy and maintain this inactivity until a favorable public policy returns. I also propose that such dormancy is rewarded when the favorable policy returns. An investigation of a panel of private commercial banks in the Indian banking industry from 1981 to 2004 lends support to this proposal.