How Does Legitimacy Operate in Emerging Capital Markets? Investigating the Moderating Effects of Premium Listings and Firm Size on Risk

Drawing on an institutional theoretical perspective, we investigated the impact of the origins of organizational legitimacy on systematic risk using a sample of 358 Brazilian companies between the years 2002 and 2007. We regard three origins of legitimacy – formal-regulatory (presence in premium listings), cultural-cognitive (board of directors), and normative (reputation) legitimacy – to empirically investigate how the company's size and adherence to premium lists moderate other sources of legitimacy. Our results indicate that only under apparently better-quality corporate governance conditions – presence in premium listings – corporate reputation and the board of directors reduce systematic risk. In addition, we show that the effect of reputation on risk is positively moderated by firm size.