Entrepreneurial Orientation, Legitimation, and New Venture Performance

• Date: 01 December 2017
• Published date: 01 December 2017
• DOI: http://doi.org/10.1002/sej.1246

Entrepreneurial Orientation, Legitimation, and New

Venture Performance

Taiyuan Wang,

1

*Stewart Thornhill,

2

and Julio O. De Castro

1

1

Department of Entrepreneurship, IE Business School, Madrid, Spain

2

Stephen M. Ross School of Business, University of Michigan, Ann Arbor,

Michigan

Research summary: We integrate research on entrepreneurial orientation and new

venture legitimacy. To create value from an entrepreneurial orientation, firms need

to possess necessary resources and capabilities, which new ventures often lack due

to their liability of newness. We posit that legitimation helps overcome these con-

straints by enabling new ventures to acquire necessary resources and develop

essential capabilities, and argue that entrepreneurial orientation and legitimation

jointly enhance new venture performance. We analyzed data on 149 new ventures

and found support for this argument. This study opens new research avenues by

extending and incorporating explanations and predictions of entrepreneurial orien-

tation and legitimation, two areas that largely have been considered as independent

of each other.

Managerial summary: In the absence of a clear connection between legitimacy

and economic returns, entrepreneurs and managers may not give strategic priority

to legitimation. We find that new ventures with an entrepreneurial orientation as

demonstrated by innovative, proactive, and risk-taking decisions and behaviors

can achieve superior performance if they also actively undertake legitimation

efforts to meet stakeholders’cognitive, regulative, and normative expectations. This

study suggests that neglecting legitimation as an important competitive tool may

be a greater mistake than previously has been realized, especially for new ven-

tures with an entrepreneurial orientation. Copyright © 2017 Strategic Management

Society

Introduction

How ventures can succeed in their early years

remains an important inquiry in entrepreneurship

and management research. New ventures play a

vital role in driving economic growth by actively

introducing novel products, services, and price/

value combinations (Aldrich & Ruef, 2006;

Davidsson, 2004). Such new entries, often enabled

by an entrepreneurial orientation (Lumpkin & Dess,

1996), may generate superior economic returns by

exploiting entrepreneurial opportunities in the mar-

ketplace (Kirzner, 1973, 1997).

Extant research indicates that an entrepreneurial

orientation helps create value when firms possess

resources and capabilities that enable them to foster

opportunity-seeking and advantage-seeking beha-

viors (Stam & Elfring, 2008; Wiklund & Shepherd,

2005). This value creation mechanism, however,

may not be applicable to the majority of new ven-

tures. Generally speaking, new ventures have not

invented or learned functional roles, implemented

effective processes, or built stable relationships

with stakeholders (Stinchcombe, 1965). These

liabilities suggest that new ventures may lack

essential capabilities to accomplish important tasks,

such as introducing new products and entering new

Keywords: entrepreneurial orientation, legitimation, liability

of newness, resource acquisition, capability development

*Correspondence to: Taiyuan Wang, Department of Entrepre-

neurship, IE Business School, Alvarez de Baena, 4, Madrid

28006, Spain. E-mail: taiyuan.wang@ie.edu

Copyright © 2017 Strategic Management Society

Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 11: 373–392 (2017)

Published online 1 June 2017 in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1246

markets. Because the risk of failure in new ven-

tures is much higher than that in established cor-

porations, new ventures often confront “liability of

newness”concerns from potential resource provi-

ders (Stinchcombe, 1965, p. 148). As a result, it

can also be difficult for new ventures to access

needed resources to exploit entrepreneurial oppor-

tunities (Fisher, Kotha, & Lahiri, 2016).

Legitimation, which refers to “the intentional

engagement of social actors in specific practices that

may lead to achieving [legitimacy]”(Drori & Honig,

2013, p. 349), is a potential antidote to the liability of

newness (Stinchcombe, 1965). Legitimacy is “a gen-

eralized perception or assumption that the actions of

an entity are desirable, proper, or appropriate within

some socially constructed system of norms, values,

beliefs, and definitions”(Suchman, 1995, p. 574).

Researchers have documented widely that legitimacy

enhances organizational survival (Delmar & Shane,

2004; Singh, Tucker, & House, 1986). However,

because “legitimacy, arguably, has no specific, tangi-

ble value and cannot be accounted for directly as a

firm asset”(Nagy, Pollack, Rutherford, & Lohrke,

2012, p. 943), whether and how legitimation affects

other performance aspects beyond organizational sur-

vival is less known.

Given that researchers and practitioners need to

better understand how new ventures can acquire

resources and develop capabilities to exploit entry

opportunities, it is imperative to incorporate explana-

tions and predictions of both entrepreneurial orienta-

tion and legitimation. An entrepreneurial orientation

alone may be insufficient to create value (Rauch,

Wiklund, Lumpkin, & Frese, 2009), especially for

small and new ventures that lack necessary resources

and capabilities (Stam & Elfring, 2008; Wiklund &

Shepherd, 2005). Legitimation, by providing an

important way for new ventures to overcome their

liability of newness (Singh et al., 1986; Zimmer-

man & Zeitz, 2002), can enable resource acquisition

and capability development needed to exploit entry

opportunities. These two lenses have been treated

largely in isolation, which not only impedes our

knowledge about how new ventures can overcome

resource and capability constraints, but may also

miss opportunities to open important research ave-

nues beyond each lens’individual explanations and

predictions (Okhuysen & Bonardi, 2011).

By combining major tenets developed in the

entrepreneurial orientation and legitimacy litera-

tures, we posit that legitimation helps new ventures

overcome resource and capability constraints and

that entrepreneurial orientation and legitimation

jointly enhance new venture performance. We ana-

lyzed data from 149 new ventures and found that

new ventures undertaking greater legitimation

efforts, that is, seeking to meet stakeholders’cogni-

tive, regulative, and normative expectations, exhib-

ited a more positive effect of entrepreneurial

orientation on firm performance.

This study contributes to entrepreneurship and

management research in two major ways. First, we

demonstrate that entrepreneurial orientation and

legitimation can be interactively beneficial to new

ventures. An entrepreneurial orientation is impor-

tant for new ventures to exploit entry opportunities

(Anderson & Eshima, 2013; Stam & Elfring,

2008), but its effect on firm performance depends

on necessary resources and capabilities (Covin &

Slevin, 1988, 1989; Wiklund & Shepherd, 2003,

2005). Legitimation can enable new ventures to

access needed resources and develop essential cap-

abilities to exploit entrepreneurial opportunities.

The joint effects of entrepreneurial orientation and

legitimation found in this study provide important

insights into the management and development of

new ventures.

Second, we reveal a new mechanism throu gh

which legitimation enables surviving organiza-

tions to create value. Tradit ionally, researchers

have focused on how legitimation affects organi-

zational survival (Bruderl & Schussler, 1990; Del-

mar & Shane, 2004) and presumed tha t

legitimacy has no tangible valu e for alive organi-

zations (Nagy et al., 2012). In cont rast to this

common assumption, our evi dence suggests that

legitimation magnifies returns from an entrepre-

neurial orientation, even thou gh it may not create

economic value directly. This finding enhances

recent theory development on the broader utilities

of legitimation for new ventures (e.g., Fisher

et al., 2016).

Theory and Hypotheses

Theoretical background

The entrepreneurial orientation literature originates

from Miller’s seminal statement: “An entrepreneur-

ial firm is one that engages in product-market inno-

vation, undertakes somewhat risky ventures, and is

374 T. Wang, S. Thornhill, and J. O. De Castro

Copyright © 2017 Strategic Management Society Strat. Entrepreneurship J., 11: 373–392 (2017)

DOI: 10.1002/sej.1246