Socially responsible activities help create business value, develop strategic resources, and insure against risks, but also cost money and distract management. These prior findings are mainly based on established corporations and may not extend to new ventures in which the liability of newness may suppress some positive effects and amplify some negative impacts of socially responsible activities. New ventures whose strategic decisions have a long-term orientation, however, are able to counteract their liability of newness and thereby generate net positive economic returns. We tested these relationships by surveying the chief executive officers and presidents and studying the signature Web sites of 149 new ventures.

Research summary: We integrate research on entrepreneurial orientation and new venture legitimacy. To create value from an entrepreneurial orientation, firms need to possess necessary resources and capabilities, which new ventures often lack due to their liability of newness. We posit that legitimation helps overcome these constraints by enabling new ventures to acquire necessary resources and develop essential capabilities, and argue that entrepreneurial orientation and legitimation jointly enhance new venture performance. We analyzed data on 149 new ventures and found support for this argument. This study opens new research avenues by extending and incorporating explanations and predictions of entrepreneurial orientation and legitimation, two areas that largely have been considered as independent of each other.Managerial summary: In the absence of a clear connection between legitimacy and economic returns, entrepreneurs and managers may not give strategic priority to legitimation. We find that new ventures with an entrepreneurial orientation as demonstrated by innovative, proactive, and risk-taking decisions and behaviors can achieve superior performance if they also actively undertake legitimation efforts to meet stakeholders' cognitive, regulative, and normative expectations. This study suggests that neglecting legitimation as an important competitive tool may be a greater mistake than previously has been realized, especially for new ventures with an entrepreneurial orientation.

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Building on social comparison theory, we posit that a firm’s pay dispersion affects its innovation through employee participation and voluntary turnover. By analyzing data collected at both employee and organizational levels from 1419 firms, we found that pay dispersion had an inverted U-shaped effect on employee participation, which in turn enhanced innovation. Pay dispersion had a positive effect on voluntary turnover, which in turn impaired innovation. These findings contribute to research on economic inequity by revealing the mediation mechanisms of employee participation and voluntary turnover in the relationship between pay dispersion and organizational innovation.

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