Contentious Legitimacy: Professional Association and Density Dependence in the Dutch Audit Industry 1884-1939

Abstract

Neo-institutionalists have criticized organizational ecology's density-dependent theory of legitimation for being a black box leaving the details of the legitimation process unspecified, and ignoring the pre-eminently political nature of the creation of new organizational forms. In the present paper, we show that Hannan, Polos and Carroll's (2007) revised density theory, which explicitly incorporates firm heterogeneity, allows for the integration of institutional reasoning and collective action in a density-dependent quantitative framework. Based on this theory, we derive predictions about fuzzy density and population contrast and test them in the Dutch audit industry, a setting where the legitimation process was fiercely contested by several professional associations for decades in the period 1884-1939. Models of audit firm exit provide strong evidence for the salience of the revised theory in understanding the legitimation process and reveal that fuzziness, resulting from fragmented collective action, hampers it.