Through the Looking‐Glass: The Impact of Regional Institutional Logics and Knowledge Pool Characteristics on Opportunity Recognition and Market Entry

Abstract

This study investigates how regional variations in institutions and knowledge pools impact new firm entry into emerging industry sectors. Using the cleantech industry sector as a research context, we hypothesize and find that supportive regional institutional logics – shared meaning systems in a community that confer legitimacy upon particular goals and practices – generate cognitive schemas (mental models) that facilitate opportunity recognition and increase new firm entry rates. Drawing from research on socially situated cognition, we demonstrate that supportive institutional logics have a greater impact on new firm entry when a regional knowledge pool is larger, but a reduced impact on new firm entry when the knowledge pool is more specialized. These findings integrate previously distinct perspectives from institutional theory and knowledge economics, while contributing to research on how new industry sectors emerge.

Fin vs. tech: are trust and knowledge creation key ingredients in fintech start-up emergence and financing?

“…Our research also expands on the work of institutional theory scholars, by theorizing and testing the impact of eroding trust in the incumbent financial sector on fintech start-up entry and financing. Our work further complements the theory and findings of Vedula et al (2018) and York and Lenox (2014), who focus on social norms supportive of the emerging sector and less so on social norms de-legitimizing the incumbent sector, the latter of which is the focus of our study.…”

“…By joining the research and insights of RBT with those of KSTE, we show that new knowledge created in different incumbent settings has a positive and dynamic effect throughout the entry and financing stages of start-ups. This builds on previous work of resource and knowledge theorists (Alvarez and Busenitz 2001;Audretsch and Feldman 1996;Audretsch and Keilbach 2007;Vedula et al 2018), which considers these phenomena separately, and rarely distinguishes between different knowledge sources. Our research also expands on the work of institutional theory scholars, by theorizing and testing the impact of eroding trust in the incumbent financial sector on fintech start-up entry and financing.…”

“…Delgado et al (2010) show that geographically concentrated clusters can lower the costs of entry for entrepreneurs through specialized supplier networks and facilitate access to early-adopter consumers, who are crucial for start-ups to validate their business models. Nevertheless, within-region variation in new knowledge creation depends on regional research facilities and investments in new knowledge-generating projects among other factors (Braunerhjelm and Feldman 2007;Delgado et al 2010;Vedula et al 2018).…”

“…Institutional theory provides the basis for understanding how entrepreneurs seek legitimacy for the new ventures and how these are affected by societal values and social norms (Meek et al 2010;Pacheco et al 2014;Vedula et al 2018;York et al 2016;York and Lenox 2014). Nascent industries often face a liability of newness (Bruton et al 2010;Pacheco et al 2014); hence, the process of gaining legitimacy in the absence of a formal regulatory environment relies on normative aspects of the social cultural environment.…”

“…Recent evidence points towards the fact that social norms can also "act as a pull that influences potential entrepreneurs to believe not only that they could enter a new field, but that they should enter a new field because it is normatively legitimate and, thus, more likely to succeed" Lenox 2014, p. 1936). Indeed, recent studies confirm that is the case across industries such as green buildings (York et al 2018;York and Lenox 2014), clean technologies (Vedula et al 2018) or responsible investment (Hoepner et al 2019). While the literature has shown that emerging industries draw their legitimacy from supportive normative institutional logics, the literature has yet to show whether social norms that erode the credibility of established incumbents also confer legitimacy to potential disruption by start-ups.…”