WEEK 38 PAPER 4 LEGITIMACYRESEarCHPAPER.docx
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WEEK38PAPER4LEGITIMACYRESEarCHPAPER
LegitimacytoSelfandtoOthers;
NewEntryandPerformanceinPopularMusic
(RESEARCHPAPER;NOTTOBEQUOTEDFROMORDISTRIBUTEDWITHOUTPRIORPERMISSIONOFTHEAUTHORS)
JOERIM.MOL
UniversityofMelbourne
DepartmentofManagement&Marketing
E-mail:
jmol@unimelb.edu.au
MINGMINGCHIU
SUNYatBuffalo
GraduateSchoolofEducation
E-mail:
mingchiu@buffalo.edu
NACHOEMM.WIJNBERG
UniversityofAmsterdam
AmsterdamBusinessSchool
E-mail:
n.m.wijnberg@uva.nl
LegitimacytoSelfandtoOthers;
NewEntryandPerformanceinPopularMusic
Abstract
ExtendingtheRBV’spremisethatresourcespredictperformance,thispapertestswhetherthepossessionofresourcesthatcanbeconsideredtoaffectthechancesofwhetherstakeholders,includingsuppliers,customersandtheentrepreneurhim/herselfriskcommittheirresourcestothenewventureaffectsitslikelihoodofsuccess.Wearguethatestablishinglegitimacyencouragescrucialstakeholderstoassociatethemselveseconomicallywiththenewentrants.Assuch,weviewlegitimacyasamulti-facetedconcept;foreachtypeofstakeholder-includingtheentrepreneur-thelegitimacyofanewfirmmaydiffer.Thisstudytestssixindicatorsoflegitimacytostakeholders:
organizationalties,priorentrepreneurialexperience,priorindustryexperience,know-howaboutinputs,linkswithmediatinginstitutions,andentrepreneurialmotivation.Usingastructuredquestionnaire,thisstudyinvestigatesperformanceandlegitimacydifferentialsofnewentries,stemmingfrom131firmsactiveintheDutchmusicindustriesovertheperiod1928-2002.Logit/Probit/Gompitregressions,pathanalysesandstructuralequationmodelsindicatethatperformance,measuredasprofitandturnovergrowth,waspredictedby:
organizationalties,priorentrepreneurialexperience,linkswithmediatinginstitutions,andcertaintypesofentrepreneurialmotivation.Surprisingly,entrantswithpriorindustryexperienceorknow-howaboutinputsshowedlowerperformance.Ourresultsshowedthatsometypesoflegitimacyaremorevitaltonewentrantsthanothersandthattherelationbetweenlegitimacytoothersandlegitimacytoselfcouldhelppredictperformance.
Keywords:
Legitimacy,NewEntry,MusicIndustry
Introduction
Newentryisabouttakingrisks.Bain(1956)notedthatentrybarriers–andtheriskoffailuretheyconstitute-arerelativetoeachentrant’scompetencesandresources.Thisimpliesthattheriskassociatedwiththeentrant’snewventureisinverselyrelatedtotheentrant’sinitialassets.Infact,notonlyisnewentryrisky,themoreaparticularnewentryisperceivedasariskyproposition,thelesswillingstakeholdersaretoavailothercriticalassetstothefirm,whichinturnincreasestheriskoffailure.ThislineofreasoningisinaccordancewiththeResource-basedView(henceforthRBV)ofthefirmthatsuggeststhatthe(initial)endowmentsofafirmaffectsperformanceprospects(Wernerfelt1984,Barney1986,Montgomery&Wernerfelt1988,Conner1991,Peteraf1993).
Theconceptoforganizationallegitimacyhasbeenproposedintheliterature(Carrolletal1996,Carroll&Hannan2000,Dobrev2001)tohelptoexplaindifferentialsinfirmsurvivalandgrowth.Itsapplicabilitytotheprospectsofnewentrantsisevident,butthoughscholarsmayagreethatorganizationallegitimacyhelpsexplaintheviabilityofnewentry,severalkeyissuesremain.Firstly,whatneedstobelegitimated?
Secondly,legitimatedtowhom?
Andthirdly,legitimatedtowhatend?
Firstly,organizationalaspectsthatneedlegitimationinclude:
theorganizationalform(Hannan&Carroll1992),theproduct(Rao1994),theprocedure(Scott1977),andtheeconomicrole(Baker&Faulkner1991,Raoetal2003).Secondly,legitimacyisenactedbysourcesoflegitimacy,whichgrantthefirm-orcertainaspectsofit-acknowledgementandrecognitionintheeyesofparticulargroupsofstakeholders.Legitimacycomesinasmanyformsastherearesources,including:
credentialingmechanisms(Rao1994,Zuckerman1999),socialpoliticalconstituencies,(Aldrich&Fiol1994),inter-organizationallinkages(Stuartetal1999,Higgins&Gulati2003),andmediaattention(Pollock&Rindova2004).Thethirdissuedirectsattentiontothepurposeoflegitimacy:
toinstillenoughconfidenceinthefirmsuchthatthirdpartieswillavailtheirresourcestoitandtherebyeconomicallyaligntheirinterestswiththoseinterestsofthefirm.Priorresearchhasshownthemitigatingeffectoflegitimacyonuncertaintythatexistswithinconsumers(Rao1994)andfinancialpartners(Higgins&Gulati2003,Pollock&Rindova2004).
Furthermore,scholarsdisagreeoverwhetherornotorganizationallegitimacyismalleable,i.e.whetherornotitcanbeplacedundermanagerialcontrol.Broadlyspeaking,therearetwocontrastingviews:
thestrategicapproachandtheinstitutionalapproach(Suchman1995).Advocatesofthestrategicapproacharguethatorganizationallegitimacystemsfromafirm’sdeliberateactionstoensurethatitdevelopsinlockstepwithitsenvironment(Pfeffer&Salancik1978,Ashforth&Gibbs1990).Assuch,legitimacyisanoperationalresourcethatthefirmcanallocatetoadvanceitsinterests.Proponentsoftheinstitutionalapproach,however,emphasizethatorganizationallegitimacyistheresultofacollectivestructurationeffortthatexceeds,bothinscaleandscope,thelegitimatingstrategiesofindividualfirms(DiMaggio&Powell1983).Nonetheless,bothviewsassumethatnewfirmswithmorelegitimacyaremorelikelytoelicitsupportiverisk-takingbehaviorfromtheenvironment.
ExtendingtheRBV’spremisethatresourcespredictperformance,thebasictenetofthispaperisthatwhetherornotstakeholders,includingsuppliers,customersandtheentrepreneurhim/herselfriskcommittheirresourcestothenewventurecriticallyaffectsitslikelihoodofsuccess.
Whetherornotstakeholdersdosodependsontheextenttowhichthecharacteristicsoftheentrepreneurservetomakenewentrylegitimateintheeyesofthesestakeholders.Indoingso,weimplicitlytestthestrategicandinstitutionalapproachhypothesesbyanalyzingwhetherentrepreneur’sattributesandactionscanincreaseorganizationallegitimacy,therebyfollowingearliersuggestionsinthisdirection(Shane&Cable2002).Bymakingexplicitthemultifacetedcharacteristicsoflegitimacy,thatlegitimacyisalwayslegitimacyintheeyesofaparticulargroupofstakeholders,ourapproachlendsitselfalsotosubjectthequestionwhetherlegitimacyleadstoperformancetoamorepreciseanalysis.Thismayalsohelptodealwiththeambiguousnessoftheoutcomesofsomeearlierstudies(Westphaletal1997)intothisrelationship.
Ourresearchstrategyisasfollows.Firstly,weclassifyentrantsintermsofobservableindicatorsoflegitimacytoexplaintheirdifferencesinperformance.Theseindicators,whethertheyarecharacteristicsoftheentrepreneurorofthefirmcanbeconsideredasresourcesthefirmdisposesoftoimproveitscompetitiveperformance.Inthispaperwewilllookatsixtypesofresourcesthatcanformpartoftheinitialendowmentsofnewentrantsandwhichmaybeconsideredtohaveanimpactontheperceivedriskofstakeholders.Thesesixare:
1)organizationaltiestoexistingfirms;2)priorentrepreneurialexperience;3)priorindustryexperience;4)know-howofinputs;5)linkswithmediatinginstitutions,thesocalled‘selectors’,and;6)entrepreneurialmotivation.Alloftheseresourcescanbeobservedbyinternalandexternalstakeholdersandcanaffecttheirwillingnesstomakeotherresourcesavailabletothefirm.Wedonotlookattheeffectofpossessionofthoseresourcesnecessarytocreatevalueintheindustrythefirmisentering,suchascapital,labororknowledge,preciselybecauseweassumethattheavailabilityofthoseresourceswillbedependentontheperceivedriskofthenewventure.
Indoingso,wedistinguishbetween‘legitimacytoothers’(thelegitimacythenewventurehasfortheexternalstakeholders)and‘legitimacytoself’(thelegitimacythenewventurehasfortheinternalstakeholder,theentrepreneur).‘Legitimacytoothers’isanexponentofthecurrentunderstandingoforganizationallegitimacy;meanwhile,weconstructed‘legitimacytoself’tocomplementhowthelegitimacyofthenewventurejustifiesriskingpersonalassets,timeandeffortonthepartoftheentrepreneur.Ofcourse,theidealtypeofinvestigationwouldbetostudytheperceptionsofstakeholdersdirectly.However,apartfromthepracticalitiesoforganizingasurveyamongalargeandverydiversegroupofrespondents,therewouldbeaseriousandunavoidableproblemwiththematchoftheoryandmethod.Onewouldliketoknowtheperceptionsofstakeholdersatthemomentthedecisionistakentoacceptaparticularrisk.Oncestakeholdershavebeenidentifiedandapproachedthismomentwillhavebeensometimeagoandtheinterveningevents,positiveornegative,willlikelyhaveasignificanteffectonretroactivereportingoftheoriginalperceptions.Preciselybecausethesizeanddirectionofthishindsight-biaswillbedeterminedbytheinteractionbetweentherespondentsrisk-preference-profileandtheperformanceofthefirmuptothemomentoftheinterview,itbecomeshard,ifnotimpossible,torelatetheoriginalperceptionwiththeeventualperformance.
Therefore,wewillrestrictourselvestostudytheindirectbuthindsight-unbiasedrelationsbetweenownershipofresourcesthatmighthaveanimpactonstakeholders’perceptionofriskandresultinglegitimacy.Inthenextsectionwewillderivefromthetheoryonnewentryandlegitimacyanumberoftypesofresourcesthatmightfunct
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