In the process of starting new ventures, entrepreneurs typically reallocate existing resources to new uses. These resource reallocations challenge the status quo, and are therefore often viewed with suspicion by others (Aldrich & Fiol, 1994). Thus, entrepreneurs need to convince others that the actions required of their new venture are desirable, proper and/or appropriate – they need to gain legitimacy. Institutional theory holds that new ventures have to conform to institutional pressures in order to gain legitimacy. Legitimacy is essential for the new ventures’ chances of survival (cf. Aldrich & Auster, 1986; Aldrich, 1999; Stinchcombe, 1965; Singh, Tucker, & House, 1986). For example, a new venture's reputation facilitates its entry into business networks, which enhances growth (Larson, 1992) and an individual's associations with government agencies and community organizations have positive effects on business founding and survival (Baum & Oliver, 1996). Consequently, institutional theory may lead us to expect that those new ventures that adapt most to institutional pressures would have the greatest chances of success.
Karlsson, T., Honig, B., Welter, F., Shakked, L. and Sadaovski, A. (2005), "A Cross-National Comparison of Incubated Organizations: An Institutional Perspective", Shepherd, D.A. and Katz, J.A. (Ed.) International Entrepreneurship (Advances in Entrepreneurship, Firm Emergence and Growth, Vol. 8), Emerald Group Publishing Limited, Bingley, pp. 165-184. https://doi.org/10.1016/S1074-7540(05)08007-4
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