Firm Legitimacy Research Articles

The hunt for international legitimacy: Examining the relationship between internationalization, state ownership, location and CSR reporting of Russian firms

This paper explores the relationship between internationalization and corporate social responsibility (CSR) communication in Russian firms. Our baseline argument is that internationalization positively affects CSR reporting, as it is expected to enhance the legitimacy of Russian firms abroad. We examine the role of state ownership, and Commonwealth of Independent States (CIS) vs. non-CIS location, as two boundary conditions on the relationship between internationalization and CSR reporting. We test our hypotheses on panel data of 223 large Russian firms for the period 2012–2017, collected from company annual reports, databases, and official company websites. Our data include financial and non-financial indicators, and firm-level organizational characteristics. The results reveal the context specificity of CSR reporting. We find that state ownership moderates the relationship between internationalization and CSR reporting in CIS and non-CIS markets differently, and the positive effect is stronger for non-CIS locations. Our study goes beyond the traditional approach, treating CSR reporting as a unidimensional construct. We show that the effect of internationalization, both direct and moderated, differs for the different types of CSR activity.

The Double-Edged Sword Effect of Brand Adaptation Strategy on Performance

To improve our understanding of the bright side and the dark side of brand adaptation strategy and determine the processes linking brand adaptation strategy to brand performance, we investigate the underlying mechanism of adaptation brand strategy’ effects from the perspective of institutional theory and organizational learning theory. we posit that strengthened legitimacy and reduced synergy mediate the effect of brand adaptation on firm performance. In addition, to capture the nature of the relationship between brand adaptation strategy and firm performance, we adopt a contingency perspective in our examination of the moderating roles of cultural distance. Specifically, we suggest that cultural distance enhances the positive effect of brand adaptation strategy on firm legitimacy and synergy. Moreover, market uncertainty strengthens the positive effect of brand localization on legitimacy and synergies. We test our hypotheses using a survey with 202 respondents in China. In conclusion, our findings provide important insights into how brands effectively utilize brand adaptation strategy to improve their performance.

The Role of Stakeholder E-Engagement on the Relation between Board Independence and Environmental Disclosure. Toward a Cohesive Corporate Governance. Evidence from Italian Listed Companies

Companies worldwide increasingly engaged in corporate social responsibility disclosure, particularly corporate environmental disclosure (CED) has gained increasing importance since the 1980s. Reporting environmental performance has become a fundamental corporate governance mechanism to improve relationship with stakeholders, enhancing companies’ image, consensus, trust and social legitimacy, particularly in a period of great change like this, where people are demonstrating a very high attention to environmental issues, due to different phenomena, like the pandemic emergency of COVID-19, the sustainable capitalism, etc.. The importance of CED has been enormously amplified in the last decades since the development of the Internet and social media (SM) as universal interaction tools useful for stakeholder engagement. Through SM stakeholder can easily ask for information, express and share requests, organize and coordinate interventions. Indeed, SM have become an important source of institutional pressure for firms and board of directors. They acts as a resonance chamber for stakeholder opinions, in which institutional pressure grows and is continuously transmitted from society to firm, influencing the firm legitimacy and the directors’ reputation. The aim of this paper is to investigate the relationship between board independence and CED, deepening the moderating role of stakeholder e-engagement through Facebook, LinkedIn and Twitter. The effectiveness of the board of directors as a monitoring mechanism is crucial to corporate transparency, especially in an institutional environment where other corporate governance mechanisms fail to guarantee stakeholder rights. We analyse a sample of 218 firm-year observations related to Italian non-financial listed companies for the period 2017-2018 and found that board independence and stakeholder e-engagement positively influence CED, whereas institutional pressure due to stakeholder e-engagement through SM play an important role on independent directors’ preferences and imply that external directors better consider the interest of external stakeholders, stimulating the company’s environmental disclosure.

The organizational legitimacy of Russian firms: Contextual specificity and legitimization strategies

Russian firms suffer from the negative country of origin effect and legitimacy shortage. This paper has the aim to reveal factors for Russian firms to focus on while build legitimacy both at home and abroad. To identify the existing research directions, the 48 articles applying legitimacy and Russian focus from journals in management and business for all years were analyzed, using both the bibliometric analysis and manual in-depth study of papers. Based on the specificity of the Russian context and literature analysis about the factors of the legitimacy concept, we develop a theoretical framework that is supported by a set of propositions about possible legitimization strategies of Russian firms. Three main pillars of the organizational legitimacy construct such as moral, pragmatic and cognitive, which are accepted as the most influential ones, were introduced and proposed for Russian firms how to gain them at home and abroad. This paper has the value for both theory and practice. It contributes to the legitimacy literature, responding to many calls to study the microfoundations of the organizational legitimacy and developing the holistic theoretical framework within the Russian context. The findings also are of practical importance for managers and entrepreneurs whose attention is paid to the effective strategic management and legitimacy building both at home and abroad.

Mixing business with politics: Does corporate social responsibility end where lobbying transparency begins?

AbstractScholars increasingly have argued that the future effectiveness and legitimacy of firms' corporate social responsibility (CSR) activities are dependent on more transparent forms of lobbying to ensure firms' policy positions are aligned with their CSR commitments. Very little empirical work, however, has systematically analyzed firms' lobbying disclosures or examined how these firms coordinate their lobbying and CSR activities. We address these empirical questions by analyzing the CSR reports of 150 corporations from Germany, the UK and the US over an 18‐year period and by conducting interviews with the CSR managers of these firms. We find that corporations have become more transparent about their public policy advocacy over time, thus acknowledging that lobbying is a CSR issue. For most firms, however, this commitment to transparency appears to be largely ceremonial. Few firms disclose the specific policy positions they advocate or sufficiently coordinate the work of their lobbying and CSR units to foster greater alignment of these activities. These modest changes in lobbying transparency appear to be driven by legitimacy concerns and, in a few instances, by governance gaps firms perceive to be relevant to their future business interests.

How and When Does Age Diversity Promote Firm Performance? The Mediation of Diversity Management and Employees’ Participation in Decision Making and the Moderation of Diversity Legitimacy Logic

Given the increasing scholarly attention to the relationship between age diversity and firm performance, the current research aimed at examining the intervening mechanisms and boundary conditions for this relationship. Specifically, I expected that age diversity would prompt firm’s diversity management and invite employees to participate in decision making, which further increased firm performance. I also expected that legitimate reason for the top management to maintain diversity (i.e., diversity legitimacy logic) was a key moderator for the effects of diversity management and employees’ participation in decision making on firm performance, such that the effects were stronger when the firm legitimacy logic was lower. Using data from 65 chief executive officers working in 65 shoe manufacture firms, we found that age diversity was positively and indirectly related to firm performance via diversity management, but not employees’ participation in decision making. In addition, we found that diversity legitimacy logic moderated the relationship between employees’ participation in decision making and firm performance. This research highlights two potential mechanisms in linking age diversity with firm performance, and also emphasizes diversity legitimacy logic as a critical boundary condition for these effects.

The double-edged sword effect of political ties on performance in emerging markets: The mediation of innovation capability and legitimacy

To improve our understanding of the bright side and the dark side of political ties and determine the processes linking political ties to firm performance in emerging markets, we investigate the underlying mechanism of political ties’ effects from the perspective of dynamic capability theory and institutional theory. We posit that reduced market-focused innovation capability and strengthened legitimacy mediate the effect of political ties on firm performance. In addition, to capture the nature of the relationship between political ties and performance, we adopt a contingency perspective in our examination of the moderating roles of legal enforceability and competitive intensity. Specifically, we suggest that legal enforceability buffers the negative impact of political ties on market-focused innovation capability but mitigates the positive impact of political ties on firm legitimacy. Moreover, competitive intensity enhances the positive impact of market-focused innovation capability and firm legitimacy on firm performance. We test our hypotheses using a survey with 362 respondents in China. In conclusion, our findings provide important insights into how Chinese firms effectively utilize political ties to improve their performance.

Confucian Values and Entrepreneurial Firm Legitimacy

This paper offers a model based on institutional theory to explain differences in the level of new venture formation and development between the Confucian-based societies of East-Asia and Western countries such as the United States. We propose that the Confucian values underlying the institutional and cultural environments of East-Asian countries adversely affect the social legitimacy of entrepreneurial firms thereby inhibiting new venture formation and growth. The theoretical model and propositions developed in this paper extend the theoretical understanding of the interplay between Confucian values, cognitive behavior, and entrepreneurial firm legitimacy. Implications for international entrepreneurship research are discussed.

Legitimising corporate reputation in times of employee distress through disclosure

PurposeThis paper aims to examine changes of non-financial voluntary reporting practices over time in response to episodes of employee-related distress. It investigates employee-related disclosures by the four largest electronic manufacturing services firms in China between 2008 and 2013 during a series of employment-related incidents, to investigate how the firms re-legitimate their reputation in response to the media coverage on those incidents.Design/methodology/approachA series of employee-related incidents that occurred in 2010-2012 is selected as the focus of this study, with total coverage of employee-related disclosures between 2008 and 2013. These incidents are directly linked to three of the four sample companies: Foxconn, Pegatron and Compal Electronics. Employee-related disclosures in corporate social responsibility (CSR) stand-alone reports are coded by a set of specifically designed instructions, and newspaper articles about employee-related incidents are coded for sentiment. Results are interpreted through two theoretical lenses: the media agenda setting theory and the legitimacy theory.FindingsNewspapers reported the employee-related incidents in a way detrimental to the legitimacy of firms that directly involved in the selected industry. In the process of legitimation, firms switch between disclosing more employee-related information and reducing disclosures. The self-expectation on organizational legitimacy also affects how CSR reporting is used in legitimation. The employee-related disclosure analysed is closer to symbolic legitimation than substantive legitimation.Originality/valueThis study contributes to reporting practice by showing that employee-related disclosure is largely vacuous and to a greater extent is used as symbolic legitimation. The quality of disclosure requires significant improvement. This study contributes to the literature by using the legitimacy theory to interpret employee-related disclosure in China, addressing inadequate research efforts in the context of social and human rights dimensions of CSR reporting.

In search of sustainable legitimacy of private firms in China

PurposePrivate firms in China are like the third child in a family, constantly struggling to establish their position in an environment favoring their state-owned and collective siblings. The purpose of this paper is to discover some long-term-oriented legitimacy building strategies for private firms in China.Design/methodology/approachThis paper examines the effect of both internal and external institutional factors on long-term legitimacy for private enterprises. The authors integrate stakeholder perspective and institutional theory to provide a framework of building sustainable legitimacy.FindingsThe authors’ framework delineates that a private company can build sustainable legitimacy through catering long-term legitimacy conferring to constituents such as customers, social responsibility and patriotism in the external institutional environment.Practical implicationsThe authors’ framework further indicates how private firms could leverage internal institutional environment through developing appropriate mission, culture, leadership and human resources practices in conformity to the demands of constituents for gaining long-term legitimacy.Originality/valueThis paper is the first to address the short-term nature of legitimacy building strategies proposed in the past literature. In addition, it is also the first attempt to explore the multiplicity in legitimacy in China in search of long-term legitimacy building approaches.

Host Market Corruption, Subsidiary Strategies and Market Exit

We study the relationship between host market corruption pervasiveness, the subsidiary localization strategies implemented by MNEs and the likelihood of host market exit. We assume that the pervasiveness of corruption in the host market threatens to undermine the legitimacy of foreign-investing firms in the host market environment. In this context, the strategic insights proffered by resource dependence theory (RDT) and institutional theory (IT) are characterized by distinct spatial orientations. RDT predicts that subsidiaries will implement proximal (or, host market-oriented) localization strategies in which host country partners and employees are hypothesized to be best-suited to efforts to enhance the subsidiary’s legitimacy and reduce the likelihood of host market exit. Conversely, IT suggests that distal (or, home market-oriented) localization strategies, in which subsidiaries prefer to engage home country partners and employees in the subsidiary investment, are better-suited to reducing the likelihood of exit from increasingly corrupt host market environments. Leveraging this theoretical tension, we investigate the relative efficacy of these strategies by developing competing hypotheses with respect to the moderating impact of proximal and distal localization strategies upon the likelihood of market exit in increasingly corrupt host market environments. Testing the hypotheses with a sample of 1,239 subsidiary investments in 31 countries during 1998-2005, we find that a proximally-oriented partnering strategy heightens the likelihood of market exit under conditions of more pervasive host market public corruption, but not more pervasive private corruption. Conversely, a distally-oriented expatriate staffing strategy increases the likelihood of market exit under conditions of both more pervasive public corruption and private corruption.

A LBV perspective on political risk management in a multinational bank during the First World War

PurposeThis paper aims to apply the Legitimacy-Based View (LBV) of political risk to the experience of the Hongkong and Shanghai Banking Corporation (HSBC) in the First World War. The paper shows that HSBC’s ability to survive this conflict was due, in part, to its ability to manage political risk by maintaining legitimacy in the eyes of stakeholders in its home market(s), Hong Kong and the UK.Design/methodology/approachThis case study is based on the surviving internal correspondence from this period in the HSBC Group archives in London and other primary sources.FindingsThis paper suggests that maintaining legitimacy in the home market is crucial to firm survival and profitability. Managers’ efforts to bolster firm legitimacy should ensure that individuals in all of the relevant government departments continue to regard the multinational enterprise (MNE) as legitimate.Research limitations/implicationsThis paper shows that the LBV is a potentially powerful analytical tool, but it also argues that the LBV must be modified so as to incorporate insights from the theoretical literature on ethnic and national identities, particularly the insight that such identities are culturally constructed and malleable.Practical implicationsWarfare tends to increase the degree to which a MNE’s stakeholders feel emotional bonds to their respective nations. HSBC’s experience in the First World War suggests that continued profitability in wartime may depend on the firm’s ability to shed its peacetime “world citizen” identity in favour of one that is more closely aligned with that of its home nation. Preserving political capital in wartime may require the ruthless termination of relationships with clients and employees who are associated with the enemy nation. Another lesson that MNE managers can derive from this paper is that preserving legitimacy in the home country may require the head office to exert more control over overseas managers, than would be the case in peace. A MNE in wartime that is concerned about the loss of legitimacy in the home country should consider adopting an organizational architecture that temporarily reduces subsidiary autonomy.Originality/valueBuckley (2009) called for the re-integration of business history in International Business research. This paper is part of the ongoing historic turn in International Business and other management disciplines. This paper also argues that International Business scholars need to consider the impact of past wars on contemporary multinationals as we may witness the re-emergence of Great Power rivalries similar to those that led to the First World War. This paper proceeds on the assumption the probabilities of a war between two major capitalist economies are non-trivial and that additional investigation of the impact of major interstate warfare on MNEs is therefore merited. Historical research can help us to think about what a war between capitalist countries would mean for today’s MNEs.

Uncovering the complex relationships between political risk and MNE firm legitimacy: Insights from Libya

Using the before–after natural experiment occasioned by the Arab Spring in Libya, we explore how market and non-market activity affect foreign firm legitimacy in times of political turmoil. Although all MNEs in Libya had to cultivate strong ties to Qadhafi to succeed during his 40 years of rule, we found that those that also invested in social-benefit projects and in social ties with families with few ties to the Qadhafi family earned a broad-based legitimacy that helped them survive Qadhafi’s overthrow. Our findings contribute to the political risk and political behavior literature the notion that the pursuit of firm legitimacy in general, and especially in the eyes of social-sector actors, is an effective hedge against political risk. More theoretically, our findings support the addition of a social-sector-based path to firm legitimacy in the host country that complements and may at times substitute for, the government-based path to foreign firm legitimacy. Practically, our findings suggest that MNEs’ facing severe political risk can improve their prospects for survival by investing in relationships with influential social groups and by offering goods or services that are perceived as socially valuable.

When in Rome, Look Like Caesar? Investigating the Link between Demand-side Cultural Power Distance and CEO Power

Agency theory-grounded research on boards of directors and firm legitimacy has historically viewed CEO power as de-legitimating, often taking this fact for granted in theorizing about external assessors' evaluations of a firm. With few exceptions, this literature has focused exclusively on capital market participants (e.g., investors, securities analysts) as the arbiters of a firm's legitimacy and has accordingly assumed that legitimate governance arrangements are those derived from the shareholder-oriented prescriptions of agency theory. We extend this line of research in new ways by arguing that customers also externally assess firm legitimacy, and that firms potentially adjust their governance characteristics to meet customers' norms and expectations. We argue that the cultural-cognitive institutions prevalent in customers' home countries influence their judgments regarding a firm's legitimacy, such that firms competing heavily in highpower distance cultures are more likely to have powerful CEOs, with CEO power a source of legitimacy-rather than illegitimacy-among customers. We also argue that the more dependent a firm is on its customers and the more salient cultural power distance is as a demand-side institutional norm, the greater this relationship will be. Data from 151 U.S. semiconductor and pharmaceutical firms over a 10-year period generally support our predictions.

How Family, Business, and Community Logics Shape Family Firm Behavior and “Rules of the Game” in an Organizational Field

The relationships between family firms and their institutional contexts are critical to family firm legitimacy and sustainability. However, we still know little about how these relationships influence firm behavior. We draw on the institutional literature—institutional logics in particular—to investigate the behavior of different types of wineries within the Okanagan region in Western Canada. We analyze how family, business, and community logics guide firm behavior, and how different combinations of logics lead firms to take action that modifies the field to support their own legitimacy and sustainability.

Toward a life cycle theory of board evolution: Considering firm legitimacy

AbstractIn this article, we build on recent attempts to theorize about the evolution of boards of directors by juxtaposing firms’ strategies to gain, maintain, and repair legitimacy onto their life cycle to examine how board characteristics change – both symbolically and substantively – to reflect their firm’s evolving legitimating strategy. In doing so, we develop insights contributing to our understanding of the mechanisms underpinning the evolving structure and composition of boards of directors. We suggest that boards fulfill an important role ingrained in the firm’s legitimacy in addition to, and intertwined with, their substantive contribution to the firm’s performance at each life cycle stage. We also address firms’ real ability to effect change in their board as a function of the factors that pertain to each stage of life cycle. We conclude by expounding the implications of this novel framework for future research and managerial practice.

Participation versus Consent: Should Corporations Be Run according to Democratic Principles?

ABSTRACT:The notion of “democracy” has become a much-debated concept in scholarship on business ethics, management, and organization studies. The strategy of this paper is to distinguish between a principle of organization that fosters participation (type I democracy) and a principle of legitimation that draws on consent (type II democracy). Based on this distinction, we highlight conceptual shortcomings of the literature on stakeholder democracy. We demonstrate that parts of the literature tend to confound ends with means. Many approaches employ type I democracy notions of participation and often take for granted that this also improves type II democratic legitimation. We hold this to be a mistake. We provide examples of the ambiguity of organizational procedures and show that under some circumstances a decrease in the degree of participation may actually increase legitimation because a governance structure that results in higher productivity can provide higher benefits for all parties involved, serve their interests and therefore meet their agreement. Less type I democracy may mean more type II democracy. We believe this to be an important insight for judging (and further improving) the legitimacy of both capitalistic firms and competitive markets.

Legitimacy and the Value of Early Customers

To overcome resource constraints and achieve exponential growth, a new venture must rely on early customers of its products to communicate value and commitment to others. For this reason, founders of new ventures focus more on early customers as a key element of their founding strategy than on other elements. But when do early customers really add value to new ventures?Scholars have used legitimacy theory to examine the benefits of gaining acceptance and conveying firm quality through conforming to social norms and following similar methods and forms. It has been argued that, independent of the customers of products and services, observable legitimacy characteristics of a new organization function as signals and are used by critical external constituents to infer the quality of the firm. This research, however, sheds little light on the manner in which firm legitimacy influences how potential customers respond to the existence of early customers. The current study therefore proposes that, depending on types of legitimacy (cognitive, regulative, and normative), early customers may have a different impact on subsequent firm performance. While a young firm may reduce information asymmetry that hampers their attractiveness to customers and other external stakeholders via the costly signal of obtaining early customers, the signal fit argument suggests that discrepancy between a signal and the characteristics of the signaler can lead to unreliable quality and lower signaling value. Legitimacy is critical because, when legitimacy is absent, early customers may not serve as an effective signal for the new venture. This study therefore explores the extent to which the signaling effect of early customers depends on these three types of legitimacy.This study employs the Kauffman Firm Survey (KFS) public database, a panel study of 4928 new businesses founded in the United States in 2004. Four surveys (baseline, first follow‐up, second follow‐up, and third follow‐up) were conducted using self‐administered Web survey and computer‐assisted telephone interview methods. In this study, the independent variables include early customers and the three types of legitimacy (cognitive, regulative, and normative) as well as a set of control variables. All independent variables were measured at the founding of the businesses in the KFS baseline survey. Dependent variables in this study include second‐year revenue, third‐year revenue, and fourth‐year revenue as measured in the KFS first, second, and third follow‐up surveys, respectively. The multinomial logistic regression and Heckman sample selection model is used to analyze the data.Results show that early customers are beneficial to new ventures, and the benefits of early customers to firm performance are higher when there is cognitive legitimacy from a capable founding team and regulative legitimacy from paying federal Social Security and Medicare taxes. Surprisingly, while incorporation improves performance for new ventures, the benefit of having early customers relative to not having early customers is lower, not higher, when the firm is incorporated than when the firm is not incorporated. Early customers have the same benefit regardless of the presence of normative legitimacy through the presence of a network with suppliers. This study therefore offers insights into the role of early customers at founding. Early customers can be very useful for founders with significant experience, and it may be a good strategy to seek them out. However, it appears that there are specific conditions under which pursuing early customers may not be an effective strategy. Founders can make strategic decisions not to pursue early customers if there are no anticipated payoffs.

"Top Management Team Demographic Faultlines, Firm Visibility and Firm Acquisition Activity in China"

This study examines how top management team (TMT) demographic faultlines hamper acquisition activities (both intensity and quantity) of the Chinese firms from a stakeholder perspective. While previous literature on the relationship between TMT composition and firm acquisition activity mainly focuses on the managerial decision-making processes, we introduce an external stakeholder perspective. That is, TMT demographic faultlines leading to conflicts and disintegration among top managers dampen the firm's social cognitive legitimacy, thereby incurring less stakeholder support for the acquisition. As a result, acquisition activity of the firm would be mitigated. Visibility of the firm (advertisement spending, reputation, institutional ownership and prestige TMT) exaggerates the faultline effects because TMT conflicts and disintegration, once uncovered by external audiences such as the target firms and financial institutions, would make them withdraw their supports to the acquisition. Using 945 publicly liste...

Corporate Governance in a Risk Society

Under conditions of growing interconnectedness of the global economy, more and more stakeholders are exposed to risks and costs resulting from business activities that are neither regulated nor compensated for by means of national governance. The changing distribution of risks poses a threat to the legitimacy of business firms that normally derive their legitimacy from operating in compliance with the legal rules of democratic nation states. However, during the process of globalization, the regulatory power of nation states has been weakened and many production processes have been shifted to states with weak regulatory frameworks where businesses operate outside the reach of the democratic nation state. As a result, business firms have to address the various legitimacy challenges of their operations directly and cannot rely upon the legitimacy of their regulatory environment. These developments challenge the dominant approach to corporate governance that regards shareholders as the only stakeholder group in need of special protection due to risks not covered by contracts and legal regulations. On the basis of these considerations, we argue for a democratization of corporate governance structures in order to compensate for the governance deficits in their regulatory environment and to cope with the changing allocation of risks and costs. By way of democratic involvement of various stakeholders, business firms may be able to mitigate the redistribution of individual risk and address the resulting legitimacy deficits even when operating under conditions of regulatory gaps and governance failure.