Development of the Legitimacy Threshold Scale

By Nagy, Brian G.; Rutherford, Matthew W. et al. | Journal of Small Business Strategy, January 1, 2017 | Go to article overview

Development of the Legitimacy Threshold Scale


Nagy, Brian G., Rutherford, Matthew W., Truong, Yann, Pollack, Jeffrey M., Journal of Small Business Strategy


Introduction

Entrepreneurship researchers agree the ability of an emerging firm to achieve legitimacy is critical for the survival and growth of the venture (e.g., Delmar & Shane, 2004; Tornikoski & Newbert, 2007). Legitimacy, from an organizational point of view, refers to "...the degree of cultural support for an organization-the extent to which the array of established cultural accounts provide explanations for its existence, functioning, and jurisdiction" (Meyer & Scott 1983, p. 201). In the emerging venture context, legitimacy fosters, ".a social judgment of acceptance, appropriateness, and desirability, [that] enables organizations to access other resources needed to survive and grow" (Zimmerman & Zeitz, 2002, p. 414).

Overall, legitimacy attainment is a milestone needing to be reached if emerging ventures are to cross into phases of organizational development where capital, employees, and customers are accessible (Aldrich & Fiol, 1994; Meyer & Rowan, 1977; Zucker, 1987). Put differently, the attainment of legitimacy, in its simplest and most basic form, is instrumental in predicting whether or not a new venture is likely to remain viable (Rutherford & Buller, 2007; Zimmerman & Zeitz, 2002). Therefore, the ability to detect and measure an approximate point in time when legitimacy is attained is of paramount importance for both entrepreneurship researchers and practicing entrepreneurs.

No empirical study has been conducted to aid the effort to better understand the salient activities that take place before and after legitimacy attainment based on the assessments of entrepreneurs and their teams - activities that may be very important signals to entrepreneurs as well as stakeholders that the emerging venture is or is not legitimate. The crux of the issue is legitimacy has no assignable financial value, and cannot be accounted for directly as a firm asset. Rather, legitimacy is an intangible asset that allows an emerging venture to access critical resources from stakeholders (Zott & Huy, 2007). Being intangible in nature, however, many entrepreneurs and new venture leaders may not even be aware they have attained it. We address this issue in the present research by approaching the assessment of legitimacy from the perspective of the business-related activities associated with pre- and post-legitimacy attainment, and, thus, we are able to develop and begin to validate the legitimacy threshold scale (LTS).

Literature Review

To date, legitimacy research has investigated the myriad ways legitimacy can be attained, either through isomorphic firm behaviors, strategic means, or social relationships (e.g., Parhankangas & Ehrlich, 2014; Rutherford & Nagy, 2015). In addition, many studies have been conducted to investigate what are the likely antecedents to legitimacy attainment (Choi & Shepherd, 2005; Nagy, Pollack, Rutherford, & Lohrke, 2012; O'Neil & Ucbasaran, 2016; Pollack, Rutherford, & Nagy, 2012; Zimmerman & Zeitz, 2002). And, overall, researchers agree that failure rates for pre-threshold firms are much higher than for post-threshold firms (Jawahar & McLaughlin, 2001; Singh, Tucker, & House, 1986; Stinchcombe, 1965). However, despite our growing depth of knowledge, we do not yet know how to measure if a company is operating pre- or post-legitimacy. This issue highlights the need to measure the legitimacy threshold.

The Legitimacy Threshold

A legitimacy threshold (LT) is generally accepted to exist in the context of emerging ventures (e.g., Fisher, Kotha, & Lahiri, 2016; Navis & Glynn, 2010; Peake & D'Souza, 2015; Zimmerman & Zeitz, 2002). However, in almost every case, the threshold is assumed or defined as "...an undetermined legitimacy level." (e.g., Haack, Pfarrer, & Scherer, 2014, p. 649). The issue that eludes the field is the empirical calibration of the concept. The one exception is the work by Rutherford and Buller (2007). …

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