Academic journal article Journal of Small Business Strategy

Toward an Integrative Research Framework for New Venture Legitimacy Judgment Formation

Academic journal article Journal of Small Business Strategy

Toward an Integrative Research Framework for New Venture Legitimacy Judgment Formation

Article excerpt

INTRODUCTION

Legitimacy is instrumental in the development, emergence, and growth of new ventures (e.g., Cornelissen & Clark, 2010; Tornikoski & Newbert, 2007; Zimmerman & Zeitz, 2002; Zott & Huy, 2007), and there is much research on this topic in the field of entrepreneurship (Bruton, Ahlstrom and Li, 2010). Given the importance of legitimacy to new ventures, founders are purported to craft and deploy signals to relevant stakeholders. Through these signals, new venture teams work to frame their business concept(s) in such a way that they are understood and accepted (Cornelissen & Clarke, 2010; Lounsbury & Glynn, 2001; Mitteness, Baucus, and Norton, 2013; Suddaby & Greenwood, 2005). Recent empirical studies focusing on new venture legitimacy indicate that both the signals deployed by new ventures and the judgments formed by stakeholders are an integral part of new venture legitimacy and ultimately, performance (e.g., Khaire, 2010; Le & Nguyen, 2009; Nagy, Pollack, Rutherford & Lohrke, 2012; Pollack, Rutherford & Nagy, 2012; Rutherford, Buller & Stebbins, 2009). Thus, scholars suggest that both academics and practitioners may benefit from a clearer understanding of how stakeholders (evaluators) render legitimacy judgments (Bitektine, 2011; Lamin and Zaheer, 2012; Mishina, Block, & Mannor, 2012; Tost, 2011) and encourage further theorybuilding in this realm.

Separately, researchers have identified four characteristics of the legitimacy judgment formation process. We believe these characteristics assist in better understanding how legitimacy judgments are formed by stakeholders and the importance of those decision-making processes to stakeholders as competitors in their respective market spaces. First, they suggest that the stakeholder must "absorb" the incoming signals before forming a legitimacy judgment (Cohen and Levinthal, 1990; Griffith, Redding, and Van Reenen, 2003; Nagy et al., 2012; Pollack et al., 2012; Zahra and George, 2002). Second, the stakeholder can renege at various stages of the signal absorption process, if the information crossing the threshold is viewed to hold little value (Boulding, 1956; Galbraith, 2001; Kast and Rosenzweig, 1972). Third, the stakeholder will use new information to update his/her existing legitimacy judgment stance (Khoury, Junkunc, and Deeds, 2013; Kolb, 1984; Tost, 2011). Finally, the stakeholder reserves the right to exploit the legitimacy judgment to best serve his/her needs (Bowman and Hurry; McGrath, 1999; McGrath, Ferrier & Mendelow, 2004). Figure 1 offers the process-based view of the new venture legitimacy judgment process. We use this process model as the starting point for the development of an integrated research framework for new venture legitimacy judgment formation.

To further explore the stakeholder legitimacy judgment phenomenon in the case of new ventures, we review both the general legitimacy and new venture legitimacy literatures, with a focus on developments in the new venture legitimacy judgment realm. After conducting this review, we believe two important and underexplored aspects of new venture legitimacy judgment formation emerge: the legitimacy judgment formation process of the stakeholder and the competitive position that the stakeholder secures by making sound legitimacy judgments. We attempt to further explore these areas by: (1) using an absorptive capacity lens to provide a theoretical model for the stakeholder legitimacy judgment process in the context of new ventures; and (2) extending the new venture legitimacy judgment literature by considering stakeholders as competitors in their own market space, who create options for exploiting business decisions through the formation of legitimacy judgments.

In our attempt to introduce an integrative framework and theoretical extension of the stakeholder legitimacy judgment formation process, we first review advances made by prior researchers in defining the legitimacy judgment process. …

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