Ecological Examination of Mortality Rate in an Infant Industry: The Roles of Legitimacy and Illegitimacy

Population ecologists have sidestepped infant industries. Moreover, prior examinations have overlooked the level issue of legitimacy and the role of illegitimacy in firm failure. We suggest that both legitimacy and illegitimacy are potent antecedents of firm failures in an infant industry. We separate industry-level legitimacy from firm-level legitimacy and propose a novel “one-stage model.” This model indicates that incumbents of the infant industry concurrently take actions to advertise their typical and atypical firm features to industry spectators. These actions not only elevate both the industry-level legitimacy of the infant industry and the firm-level legitimacy of the incumbents but also simultaneously incite competition among the incumbents. We used a manually collected database of news articles on Chinese bicycle-sharing companies to examine firm failures in this infant industry from 2014 to 2017. We found that at the industry level, while industry-level legitimacy reduces a firm’s mortality, industry-level illegitimacy elevates the firm’s mortality. At the firm level, we confirm both the detrimental and beneficial effects of interfirm competition. When the rivals of the focal firm tout their atypical firm features, the focal firm’s likelihood of failure increases; when rivals and focal firm try to highlight their typical firm features, the focal firm’s failure rate decreases. When it comes to firm-level illegitimacy, both the focal firm and its rivals’ illegitimacies increase a firm’s mortality. We confirm that legitimacy and illegitimacy are not two poles of a single continuum.