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Navigating Alternative Sources of Legitimacy in Times of Extreme Uncertainty
Navigating Alternative Sources of Legitimacy in Times of Extreme Uncertainty: How Multiple Aspirations Interact to Influence Firm Formalization
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Keywords: Behavioral theory of the firm, informal firms, formalization, legitimacy, Covid-19 pandemic.
Abstract:
We explore behavioral antecedents of firm formalization in times of extreme uncertainty. We argue that informal firms’ propensity to formalize is subject to their financial and informal legitimacy aspirations. Drawing on the behavioral theory of the firm and threat rigidity hypothesis literatures, we suggest that informal firms’ over (under) performance on financial and legitimacy aspirations are both independently and jointly associated with the risk-seeking (risk-avoiding) behavior associated with formalization. We explore these effects by conducting three experimental vignette studies in a cluster of informal firms a few months into the Covid-19 pandemic in Ghana. The findings indicate that informal firms are more likely willing to adopt higher levels of formalization in the face of uncertainty when financial performance and legitimacy are above aspiration level, yet do not do so when financial performance and perceived legitimacy are below aspiration. We also find that owners/managers of informal firms showed a differential preference for the different levels of formalization based on the interaction between financial performance and legitimacy relative to aspiration.
Bios:
Michael J. Mol is a Professor of Strategic and International Management in the Department of Strategy and Innovation at Copenhagen Business School and in part-time at Birmingham Business School. His research focuses on the strategic management of larger firms, with a particular interest in issues including management innovation, corporate social responsibility, offshoring and outsourcing, inequality, and strategy in Africa. He tackles these issues from a variety of theoretical and methodical angles. His work has among others appeared in Academy of Management Review (where he won the best article award), Journal of International Business Studies, and Strategic Management Journal. He serves or has served on the editorial boards of journals including Academy of Management Journal, California Management Review, Global Strategy Journal, and Journal of International Business Studies. He has served as a department chair at Copenhagen Business School and Warwick Business School. Michael holds a PhD from Rotterdam School of Management, Erasmus University.
Selorm Agbleze is a Lecturer in Enterprise and Entrepreneurship at the Management & Organisations Department, University of Leeds. His research delves into decision-making amidst institutional incongruence, exploring areas such as venture choice, competitive action, and formalization within informal and developing economies. He holds a PhD from the Copenhagen Business School, Denmark.