Two Coins in One Purse? How Market Legitimacy Affects the Financial Impact of Changes in Social Legitimacy: Addition and Deletion by the Dow Jones Sustainability Index Two Coins in One Purse? How Market Legitimacy Affects the Financial Impact of Changes in Social Legitimacy: Addition and Deletion... (original) (raw)

Abstract

This study considers the interplay between two dimensions of organizational legitimacy: Market legitimacy arising from a firm's alignment with the norms and values of market actors and social legitimacy stemming from the firm's alignment with the norms and values of non-market actors. Using a large-scale financial event study of additions and deletions by Dow Jones Sustainability Index, we demonstrate that firms with higher market legitimacy benefit less from increased social legitimacy and lose less from decreased social legitimacy. We contribute to neo-institutional literature by highlighting that different sources of legitimacy may substitute for each other in affecting organizational outcomes.

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