How does Dual Legitimacy Influence Innovation? Evidence of Global Semiconductor Companies

Abstract

Although the literature of firm innovativeness has long been accumulating, many focus on either environmental or organizational determinants. The institutional influences remain relatively silent, letting alone the interplay of rational and social motives behind innovative behavior of firms. To address the gap, this study aims to examine the extent to which the pursuit of dual legitimacy, characterized by technological dependence (internal legitimacy) and technological isomorphism with rivals (external legitimacy), shapes a firm’s innovation performance. In addition, since institutional forces, firm strategies and environmental settings are regarded as the core factors in the innovation regimes, this study also extends to include a contingency view to analyze the effects of legitimacy on performance. In a sample of 70 semiconductor firms worldwide over 1976~2008, 468,208 patents granted and 4,089,066 citations made. This study finds that a firm’s technological path dependence on its technological trajectory is positively associated with the quantitative dimension of its innovativeness, but negatively associated with the qualitative dimension. The evidence also shows that a firm’s technological isomorphism with rivals is negatively associated with the quantitative dimension of innovativeness, but positively associated with the qualitative dimension. Further, the innovation quality-enhancing effect of external legitimacy is stronger when the firm stays more exploratory in its knowledge search. The innovation quality-enhancing effect of internal legitimacy is stronger when the firm is subject to more dynamic environments. The study demonstrates its fruitfulness of its integrated framework by bridging the findings with the literature of institutional theory, organizational learning, and environmental dynamism.