The Impact of Organizational Legitimacy on Product Innovation: A Comparison Between New Ventures and Established Firms

Abstract

What is the impact of organizational legitimacy (OL) on the firm innovation? The extant literature shows ambiguous answers. This study argues that such an ambiguity stems from two neglected facts. First, OL is audience dependent. Second, OL varies across firm life cycle stages. This study clarifies political legitimacy (PL) and market legitimacy (ML) as two key types of OL, and distinguishes them in resources they provide access to and firm behaviors they result in. Then, it examines the impact of PL and ML on the product innovation in new ventures and established firms, respectively. Drawing on the data of 211 firms, this study finds that the relationship of PL to product innovation is inverted U-shaped in new ventures, while negative in established firms, and the linkage between ML and product innovation is positive in new ventures but inverted U-shaped in established firms. This study not only draws a more comprehensive picture about the impact of OL on the product innovation, but also lays down a threshold over which to elaborate the implications of OL. In addition, it guides new ventures and established firms in taking advantage of OL to foster the product innovation.