Does Establishing Sociopolitical Legitimacy Overcome Liabilities of Newness? A Longitudinal Analysis of Top Performers

Abstract

This work builds upon an existing stream of research that seeks to empirically elucidate the role of legitimacy in helping entrepreneurs overcome liabilities of newness. More specifically, we examine the relationship between legitimating activities and performance in new ventures. We add to the empirical literature on the legitimacy/performance relation by focusing on top performing firms (on multiple performance measures) during the initial phase of the organizational life cycle. Moreover, we submit that our longitudinal sample, which includes data from nearly 5,000 new ventures, offers an important opportunity to enhance the external validity of this base of literature. Interestingly, we find that the value of engaging in legitimating activities depends upon the outcome measure. With regard to top line performance, and in accordance with theory and extant literature, we find that companies engaging in more legitimating activities at start-up are more likely to be top performers as they move beyond the “birth” phase. However, with regard to profitability, engaging in these activities may actually be detrimental.