New here? Lawyer up, please: Differences in external legal expenditure between new ventures and established firms in emerging economies

Abstract

This study examines the differences in external legal expenditure between new and established firms in emerging economies and nuances the dominant view that firms in emerging economies primarily rely on relational strategies to tackle legal and regulatory challenges. Unlike established firms, new ventures lack legitimacy, making relational strategies less viable. Consequently, I theorize that relative to established firms, new ventures in emerging economies will invest more in formal legal strategies, such as hiring external legal services. However, due to financial constraints, their ability to do so will be contingent on financial slack. Analyzing a longitudinal dataset of 23,039 firms in India (1989–2022) using linear panel regression models, I confirm the presence of a positive relationship between new ventures and external legal expenditure, moderated by financial slack. This study contributes to the literature on emerging economies as well as the legal and regulatory aspects of entrepreneurship.