Organizational Legitimacy and the Liability of Newness

Abstract

Investigates the processes in organizations that underlie the liability of newness--i.e., the higher propensity of younger organizations to die. Whether the liability of newness is due primarily to external factors or internal processes is examined by analyzing the event histories of organizational death. The theoretical arguments underlying this study are developed using data gathered from 389 voluntary social service organizations that came into existence in Toronto, Canada during 1970 to 1980; activity data was gathered through 1982. Results suggest that the acquisition of external legitimacy, including the establishment of supportive exchange relationships with external stakeholders, is related to a significant reduction in the hazard of death. In addition, it is shown that organizations that are not externally legitimated have either a constant hazard of death that does not decline with firm age or an increasing probability. Finally, it is demonstrated that most internal organizational changes are unrelated to the death rate. (SFL)