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Contagion Entrepreneurship: Institutional Support, Strategic Incoherence, and the Social Costs of Over-Entry

2015; Wiley; Volume: 53; Linguagem: Inglês

10.1111/jsbm.12183

0047-2778

Richard A. Hunt,

Private Equity and Venture Capital

Journal of Small Business ManagementVolume 53, Issue S1 p. 5-29 Original Article Contagion Entrepreneurship: Institutional Support, Strategic Incoherence, and the Social Costs of Over-Entry Richard A. Hunt, Corresponding Author Richard A. HuntRichard Hunt is assistant professor of strategy and entrepreneurship at the Pamplin College of Business, Virginia Polytechnic Institute.Address correspondence to: R. Hunt, Virginia Polytechnic Institute, Pamplin College of Business, Pamplin Hall 2096, Blacksburg, VA 24061. E-mail: [email protected].Search for more papers by this author Richard A. Hunt, Corresponding Author Richard A. HuntRichard Hunt is assistant professor of strategy and entrepreneurship at the Pamplin College of Business, Virginia Polytechnic Institute.Address correspondence to: R. Hunt, Virginia Polytechnic Institute, Pamplin College of Business, Pamplin Hall 2096, Blacksburg, VA 24061. E-mail: [email protected].Search for more papers by this author First published: 18 September 2015 https://doi.org/10.1111/jsbm.12183Citations: 28 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Abstract Existing literature on the legitimizing role of institutions tilts toward a "more is better" perspective, proffering the notion that the liabilities of smallness and newness can be mitigated through institutional policies that foster acceptance, trust, and confidence. Although this may seem reasonable, even desirable, institutional munificence can trigger massive over-entry, potentially causing unintended consequences and unwanted social costs. Using a data set of nearly six million transaction-level decisions involving all 612 companies and 56,240 permitted projects from a complete industry history, I find that unforeseen costs arise when small, early-stage firms substitute the legitimizing effects of institutional support for strategic coherence. The findings are surprising and significant. While institutional support for new markets does in fact generate a surge in firm formations, the ill effects of munificence are evidenced by indiscriminate, contagion-style market entry by unfit firms that perform poorly, fail quickly, and leave a long trail of regulatory violations in their collective wake. 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