"Institutional Pressures, Legitimacy, and Performance in the US Tobacco Industry"

Abstract

This study investigates the relationship among institutional pressures, legitimacy, and performance. Specifically, it studies how tobacco control regulations impact tobacco companies’ legitimacy, and how does that in turn affect tobacco companies’ performance. Using data from the US tobacco industry between 1994 and 2010 yielded three major findings. First, the results show a negative association between tobacco control regulations and tobacco companies’ performance. Second, the results show that tobacco control regulations negatively affect tobacco companies’ legitimacy. Lastly, the results show that tobacco companies’ legitimacy positively impacts tobacco companies’ performance. Combined, the results suggest that legitimacy mediates the relationship between institutional pressures and performance. However, the mediation effect is only present when institutional pressures represent deeply held societal norms and values, but not when these pressures represent fragmented norms and values. This study contributes to the literature by empirically testing some of the core concepts of institutional theory, by taking a fine-grained approach to the study of institutional pressures in a pertinent setting, by using the organizational field as the unit of analysis, and by empirically showing that in the presence of endogeneity the mediation results using OLS estimation differ substantially from those of the 2SLS instrumental variable estimation.