Networks and institutions are the two major social structures that economic sociologists have presented as providing governance to market exchanges. Although these two pillars of economic sociology have inspired many empirical studies, most of the research examines only one or the other separately, resulting in not much being known about how the two are interrelated. This study empirically investigates how networks and institutions interplay in governing market exchanges. To do so, it examines a type of transaction that faces a particularly high level of uncertainty—acquiring a foreign firm—and two state policies that institutionalize the transaction—antitrust and merger laws. Using fixed-effects models on cross-border acquisitions in country-pairs, this study finds that the relationship between networks and institutions is substitutive when the institution is widely perceived as legitimate. Market participants rely less on networks when antitrust laws are present in the partner country. However, when there is a normative ambiguity surrounding the institution, the relationship is complementary. Market participants rely more on networks when merger controls are present in the partner country.
