Decisions of firm risk and the role of organizational identity

Abstract

Due to risk aversion, nonprofit firms are believed to have a lower propensity to innovate than for-profits. In turn, social enterprises have arisen as a popular alternative to nonprofits under the expectation that their for-profit practices will lead to increased social innovation. Yet, hybrid firms face uncertainty in their organizational identity, which may detract from their propensity to innovate. Further, there is little empirical work on the actual differences of risk-taking outside of for-profit firms. This paper assesses how the organizational identity of a firm impacts their decisions of risk. Using survey data from the US state of North Carolina, logistic estimations reveal that organizational identity has differential impacts across firm structures. Specifically, for-profit firms benefit from an entrepreneurial identity, while nonprofit firms are hindered by a hybrid identity. This paper provides important developments in our understanding of the role of organizational identity on risk-taking behavior beyond traditional for-profit firms.