Liability of Foreignness of Entrepreneurial Firms: Immigrant-founded Ventures in the U.S.

Abstract

Liabilities of foreignness are particularly salient for immigrant entrepreneurs because such entrepreneurs cross international borders and establish new ventures in an institutional environment that differs from that of their previous experiences. However, most existing theory in this space has focused on multinational enterprises and has not integrated the unique characteristics and constraints facing immigrant entrepreneurs. Accordingly, we draw on institutional theory to develop a theoretical framework underpinning the liability of foreignness of immigrant entrepreneurs. We then extend this framework to propose behaviors that immigrant-founded ventures may implement to navigate the liability of foreignness. In so doing, we highlight the importance of navigating isomorphic pressures in order to gain the legitimacy and resources that support success in a new environment. We test our theory using data from the US Census Bureau’s Survey of Business Owners. We find that, ceteris paribus, the performance of immigrant-founded firms is consistent with facing liabilities of foreignness and those ventures that best assimilate, combine, and apply knowledge from their various institutional settings/background will reap the greatest performance benefits. Further, native-founded ventures that integrate multicultural experiences outperform non-multicultural venture. We also find that behaviors that increase the institutional isomorphism of immigrant founded ventures - including co-founding with a native, conducting business in English, and operating in a globalized context - reduce the performance gap between immigrant-founded ventures and native-founded ventures. Our analysis thus demonstrates the importance of isomorphism in mitigating and overcoming the liability of foreignness facing immigrant-founded ventures.