1. business and industrial

TOWARDS A THEORY OF SOCIOCULTURAL MUNIFICENCE: FIRM SURVIVAL
IN THE GREEN BUILDING SUPPLY INDUSTRY
Siddharth Vedula*
PhD Candidate, Department of Management & Entrepreneurship
University of Colorado - Boulder
Leeds School of Business
303-263-9388
[email protected]
Jeffrey G. York
Assistant Professor, Department of Management & Entrepreneurship
University of Colorado - Boulder
Leeds School of Business
303-807-6027
[email protected]
Michael Conger
PhD Candidate, Department of Management & Entrepreneurship
University of Colorado - Boulder
Leeds School of Business
303-476-3657
[email protected]
*Corresponding author
Last revised on 06/30/2014
Working paper: Please do not cite or circulate without permission
Firm Survival in the Green Building Supply Industry
TOWARDS A THEORY OF SOCIOCULTURAL MUNIFICENCE: FIRM SURVIVAL
IN THE GREEN BUILDING SUPPLY INDUSTRY
ABSTRACT
We extend the social entrepreneurship literature by introducing three types of
sociocultural munificence for hybrid social ventures in an emerging industry sector: 1) social
movement alignment, 2) social norms alignment and 3) political norms of needs versus meritbased resource allocation. Moreover we argue that the influence of sociocultural munificence on
social entrepreneurs’ survival depends on overall economic munificence. Across a large multiyear panel of hybrid social entrepreneurship ventures we find the survival rate of social
entrepreneurs is positively impacted by alignment with regional social movements and regional
social norms. In addition, we find that political norms of need-based resource allocation insulate
social entrepreneurs from negative economic conditions, whereas political norms of merit-based
resource allocation amplify the impacts of economic munificence. Our theory and findings
contribute to the entrepreneurship, social entrepreneurship, and organizational ecology
literatures.
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Firm Survival in the Green Building Supply Industry
“When I was a boy and I would see scary things in the news, my mother would say to me, ‘Look
for the helpers. You will always find people who are helping.’ To this day, especially in times of
disaster, I remember my mother’s words, and I am always comforted by realizing that there are
still so many helpers – so many caring people in this world.” –Fred Rogers (Mr. Rogers)
“If we take the route of the permanent handout, the American character will itself be
impoverished.” –President Richard Nixon
INTRODUCTION
Social entrepreneurship has emerged as an important mechanism for hybrid organizations
create economically sustainable solutions to major social and environmental problems (Battilana
& Dorado, 2010; Mair & Marti, 2006; Miller, Grimes, McMullen, & Vogus, 2012; Moss, Short,
Payne, & Lumpkin, 2010; Tracey, Phillips, & Jarvis, 2011). For example, researchers have
examined hybrid ventures that produce products that profit from providing small loans to microentrepreneurs (Battilana & Dorado, 2010), provide health care for workers in the developing
world (Mair & Marti, 2006), alleviate poverty (Mair & Marti, 2009), recycle valuable resources
(Lounsbury, Ventresca, & Hirsch, 2003), remove pesticides from food (Weber, Heinze, &
DeSoucey, 2008), and harvest environmentally sustainable energy from the wind (Sine & Lee,
2009) and sun (Meek, Pacheco, & York, 2010). This nascent literature illustrates the powerful
potential for new hybrid firms (i.e. social entrepreneurs) to have a positive impact on markets
and society.
However, because social entrepreneurship is such a recent phenomenon, the factors that
impact the success or failure of such ventures have been little examined. Scholars have suggested
that social entrepreneurs are more determined and motivated than their traditional entrepreneur
counterparts (Austin, Stevenson, & Wei-Skillern, 2006; Dacin, Dacin, & Matear, 2010), which
may increase their chances of survival. A broader perspective suggests that social entrepreneurs
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Firm Survival in the Green Building Supply Industry
are more likely than traditional entrepreneurs to fail (Aldrich & Fiol, 1994; Stinchcombe, 1965)
because their businesses are not only focused on maximizing firm value, but seek to generate
positive externalities for society (Santos, 2012). This dual-set of priorities exposes social
entrepreneurs to criticism on one side from traditional social movements for “profiting from
others’ problems” and from economic stakeholders on the other side for not being singlemindedly focused on the bottom-line (Lumpkin, Moss, Gras, Kato, & Amezcua, 2013). Hybrid
ventures occupy the messy middle ground between being purely non-profit charities and for-
profit companies and thus, are likely more fragile than either of these purer organizational forms
(Austin et al., 2006; Lumpkin et al., 2013). However, social entrepreneurship is a novel and
creative vehicle for addressing social and environmental problems; therefore it is critical to
understand the drivers of why these firms survive or perish.
We begin with the economic munificence in an industry sector, which, according to prior
theory, should be one of the most important predictors of new venture survival. For social
entrepreneurs high economic munificence should also be important. However, this seemingly
obvious relationship between broad economic conditions and organizational performance has
been surprisingly difficult to detect empirically. For example, some studies find that economic
munificence is positively related to performance (Everett & Watson, 1998; Swaminathan, 1996),
some find no relationship (Audretsch & Mahmood, 1995; Boeri & Bellmann, 1995), and some
even find a negative association (Beck, Levine, & Loayza, 2000; Demirgüç-Kunt &
Maksimovic, 1995). Overall, broader economic conditions have been shown to only explain two
percent of the variance in organizational performance (McGahan & Porter, 1997; Rumelt, 1991).
So, why is the association between economic munificence and organizational
performance so variable? To help solve this puzzle, we suggest that sociocultural norms, defined
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Firm Survival in the Green Building Supply Industry
as normative beliefs regarding the legitimacy of a practice, technology, or business, determine
how economic munificence is distributed in a region; economic munificence determines the
quantity of money that is available in a region, and sociocultural norms determine how that
money is allocated (Ingram & Silverman, 2002; North, 1990; Olson, 1982; Scott, 1995). Simply
put, the sociocultural norms in a region may determine whether distributing resources to social
ventures is deemed legitimate, and whether resources tend to be distributed to ventures based on
equality, merit, or need-based norms. We theorize that regional economic munificence is
allocated to social ventures based on the regional resource allocation norms, which can be a
source of sociocultural munificence (or not). Specifically, we argue that economic resources will
tend to be distributed to social entrepreneurs in regions with supportive social movements as well
as supportive social norms.
We test our theory utilizing a unique panel of 861 new entrants into the green building
supply industry, over the period 1999-2007. Following Santos (2009) and Zahra et al. (2009), in
this study we define social entrepreneurs as individuals who create organizations that seek to
create “total wealth” (Zahra et al, 2009: 519), generating economic income while provisioning
neglected positive externalities under conditions of market failure (Santos, 2009 20). Because the
environmental and health benefits of green building are inherent to this industry (Eichholtz, Kok,
& Quigley, 2010; Hoffman & Henn, 2008; York & Lenox, Forthcoming), green building
provides a robust setting to better understand how the macro environment influences the survival
of social entrepreneurs who seek to address to create both economically and ecologically
sustainable products and services. Our findings suggest that in favorable economic conditions,
social entrepreneurs will be able to claim more resources in regions allocating resources based on
merit, and during difficult economic times social entrepreneurs will be able to claim more
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Firm Survival in the Green Building Supply Industry
resources in regions allocating resources based on need. Thus, the relationship between
economic conditions and social entrepreneurship is largely dependent upon regional social
norms, and social movements.
Our theoretical rationale and empirical findings answer the call to identify predictors of
social entrepreneurial survival (Dacin, Dacin, & Tracey, 2011; Short, Moss, & Lumpkin, 2009)
while helping solve the puzzle of why economic munificence is so weekly related to firm
performance. We also contribute to the broader literature examining institutions and
entrepreneurship (Tolbert, David, & Sine, 2010) by showing that informal, decentralized
institutions may be important considerations for new firms’ survival above and beyond
formalized institutional and economic munificence. Finally, we contribute to the business and the
natural environment literature (Bansal & Hoffman, 2012) and the social entrepreneurship
literature (Dacin et al, 2011; Short et al., 2009) by theorizing how sociocultural munificence may
impact the emergence of firms pursuing environmentally superior products offerings (Lenox &
York, 2011) and firms seeking to address societal problems (Mair & Marti, 2006).
ECONOMIC MUNIFICENCE, SOCIOCULTURAL MUNIFICENCE, AND SOCIAL
ENTREPRENEURSHIP SURVIVAL
Sector Economic Munificence and Social Entrepreneurship Survival
Social entrepreneurship is a growing phenomenon that has captured the attention of
organizational scholars (Austin et al., 2006; Dacin et al., 2011, 2010; Mair & Marti, 2006; Miller
et al., 2012; Short et al., 2009). Social entrepreneurs differ from traditional entrepreneurs in that
they address social and environmental problems while simultaneously pursuing economic profit
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Firm Survival in the Green Building Supply Industry
(Battilana & Dorado, 2010; Mair & Marti, 2006; Miller et al., 2012; Moss, et al., 2011; Tracey et
al., 2011) and seek to create “total wealth” (Zahra, Gedajlovic, Neubaum, & Shulman, 2009:
519). Because of this dual social/profit focus, social entrepreneurs may be empirically
distinguished from, and face different challenges than, their traditional philanthropic and
commercial counterparts across several dimensions.
Social entrepreneurs typically serve a different type of customer, often including the poor
and disadvantaged (Peredo & Chrisman, 2006; Peredo & McLean, 2006; Seelos & Mair, 2005),
bottom of the pyramid markets (Kistruck, Sutter, Lount, & Smith, 2012; Kistruck, Webb, Sutter,
& Ireland, 2011), or even the natural environment (Lenox & York, 2011; York & Venkataraman,
2010). Moreover, a significant portion of the value created by social entrepreneurs often accrues
to the commons as public goods, which means social firms do not capture the same level of
created value that their purely commercial counterparts do (Dart, 2004; Ostrom, 1990).
Therefore, social entrepreneurship often occurs within emerging sectors that offer socially or
environmentally preferable alternatives. Examples included organic foods (alternative to
pesticide based farming), microfinance (alternative to traditional banking and philanthropy), and
renewable energy (alternative to polluting coal and gas-based energy production). The creation
of such sectors requires social entrepreneurs to create both innovative business models, and to
engage in broader institutional entrepreneurship within the macro-environment.
However, most social entrepreneurship research has examined the motivations of social
entrepreneurs (Dacin et al., 2010; Miller et al., 2012; Short et al., 2009), saying little about how
macro conditions may influence the persistence, or demise of the social ventures they initiate.
We suggest that, like all entrepreneurs, social entrepreneurs must secure resources in order to
have their ventures succeed; the ability to grow and secure a resource base is clearly one
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Firm Survival in the Green Building Supply Industry
hallmark of successful, versus failed entrepreneurs (Castrogiovanni, 1996; Pfeffer & Salancik,
1978). The impact of resource munificence, or scarcity, should be particularly pronounced in the
context of social entrepreneurship because social entrepreneurs seek to create positive
externalities that are overlooked by current market offerings (Santos, 2012). Drawing the
investment and talent needed to succeed may be significantly more difficult for social ventures
because only the suppliers, customers, investors, and employees who are willing to forego
appropriating some economic value in favor of creating social value will be available to them
(Austin et al., 2006; Lumpkin et al., 2013). Thus, we are faced with a puzzle: What are the
regional, macro-environmental factors that will help social entrepreneurs survive?
The extent to which environmental characteristics give new firms increased access to
resources or compensate for a lack of resource munificence affects firms’ chances of survival
(Cabral & Mata, 2003; Castrogiovanni, 1996; Geroski, Mata, & Portugal, 2010; Hiatt & Sine,
2013) because new firms have less slack and are disproportionately affected by changes in the
resources that are available to them (Hiatt & Sine, 2013).
Social ventures are fragile because they often offer unproven products, are new
organizations without a track record, and face competition from incumbent firms (Carroll &
Hannan, 2000; Markman & Phan, 2011; Stinchcombe, 1965). In times of economic downturn,
nascent social ventures may be even less likely to survive because resources are less available to
them (Rao, 2004; Stinchcombe, 1965). When resources become scarce, such firms may tend to
have smaller reserves on which to draw and fewer capabilities to overcome this deficit
(Zimmerman & Zeitz, 2002). Survival is further complicated because social ventures lack
cultural-cognitive legitimacy (Scott, 1995) owing to their unorthodox solutions to social
problems, bearing an imperfect resemblance to both commercial entrepreneurs and non-profits.
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Firm Survival in the Green Building Supply Industry
Not only are social entrepreneurs subject to liability of newness (Stinchcombe, 1965), but the
pool of resources available to them is limited to those provided by stakeholders who are willing
and able to commit to the social mission of the venture without requiring the maximum financial
return they would expect from a commercial venture. In other words, providing resources to
social ventures exacts a premium from the provider. Similar to luxury goods, the demand for the
social value created by social entrepreneurs may drop severely during times of economic
hardship. Social ventures are akin to the “canaries in the coal mine” that will be among the first
businesses to die during difficult economic conditions. We expect that the impacts of sector
economic conditions will be readily seen among new social ventures, thus:
Hypothesis 1: Economic munificence in an emerging sector will be positively related to
the survival of social entrepreneurs in that sector.
Sociocultural Munificence and Social Entrepreneurship Survival
Although we expect that the economic munificence in an industry sector will increase
social entrepreneurs’ survival chances, we do not posit that such economic conditions will act in
isolation. In addition to economic conditions, firms are the product of the sociocultural
environments in which they are embedded (DiMaggio & Powell, 1983; DiMaggio, 1988; Meyer
& Rowan, 1977; Scott, 1995; Shane, 2004). In contrast to the rational, opportunity-based
influence of economic munificence the sociocultural environment consists of decentralized
institutions (Ingram & Silverman, 2002) that are enforced through normative legitimacy (Scott,
1995).
Following recent work on institutions and entrepreneurship (see Sine & David, 2010 for
a review) we define the sociocultural environment as the unwritten “rules of the game” as
represented by the actions of social movements (Hiatt, Sine, & Tolbert, 2009; Sine & Lee, 2009)
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Firm Survival in the Green Building Supply Industry
and the prevalence of social norms (Meek et al., 2010; York & Lenox, Forthcoming). As noted
above, the economic environment provides economic resources, and the sociocultural
environment provides sociocultural resources in the form of legitimacy that a firm is doing the
“right” thing and is engaged in a morally desirable endeavor (Aldrich & Fiol, 1994). As Begley
and Tan (2001: 537) write, “the sociocultural environment for entrepreneurship” may also have
significant impact on social entrepreneurship. Because social entrepreneurs focus on a
simultaneous economic and social/environmental mission (Lenox & York, 2011; Miller, Grimes,
McMullen, & Vogus, 2012), scholars have argued they may be highly aware of, and influenced
by, the sociocultural context (Fauchart & Gruber, 2011; Meek et al., 2010; Sine & Lee, 2009).
For this study, we define sociocultural munificence as the degree to which actors in a
region hold beliefs enforcing the moral correctness of the specific activities of social
entrepreneurs; thus sociocultural munificence represents a high level of normative legitimacy
(Scott, 1995). Normative beliefs have been previously shown to influence individuals’
perceptions of the legitimacy, and attractiveness of engaging in entrepreneurship (McMullen &
Shepherd, 2006). Numerous researchers have examined the importance of the sociocultural
environment on entrepreneurship focusing on the role of social movement organizations (SMOs)
(Hiatt et al., 2009; Lounsbury et al., 2003; Sine & Lee, 2009) and social norms (Meek et al.,
2010) in moderating founding rates. For example, York and Lenox (Forthcoming) showed that
both SMOs and environmental norms differentially influenced entry of entrepreneurs into the
emergent green building sector, but not incumbent, diversifying firms. Building on this body of
evidence, we theorize that the sociocultural environment may impact the survival rate of social
entrepreneurs through the activities of social movement organizations and regional social norms.
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Firm Survival in the Green Building Supply Industry
Social Movements and Social Entrepreneurship. One way in which the broader
sociocultural environment can impact the legitimization, and thus survival likelihood of, social
entrepreneurs is through the activities of social movement organizations (SMOs). Social
movements are “organized collective endeavors to solve social problems” (Rao, Morrill, & Zald,
2000: 244); they are the collective organization of individuals and organizations with shared
identities or goals (Blumer, 1962) towards social change (McCarthy & Zald, 1977). Social
movements are often enacted through social movement organizations (SMOs) which are
“complex, or formal, organizations which identify their goals with the preferences of a social
movement or a countermovement and attempt to implement those goals” (McCarthy & Zald,
1973: 1218) through formally organizing mobilizing resources for collective action (McCarthy &
Zald, 1973; Zald & McCarthy, 1986).
The broader impacts of SMOs on entrepreneurial survival have been often examined by
scholars at the intersection of institutions and entrepreneurship. For example, Hiatt and his coauthors (2009) examined how the sociocultural environment created by the temperance
movement harmed alcohol entrepreneurs while Sine and Lee (2009) examined how the
sociocultural environment fostered by the Sierra Club influenced entry for wind energy
entrepreneurs. When SMOs aligned with an emerging sector’s economic and normative value
propositions are active in a region, they can strengthen the legitimacy of sectors, and the
entrepreneurs entering into a new sector.
In a study of the U.S. wind power industry Sine and Lee (2009) found evidence that local
Sierra Club (an environmental SMO) membership had a greater influence than economic
resources on founding of new wind power firms. Similarly, Weber et al. (2008) describe how
SMOs motivated entrepreneurship in the nascent grass-fed beef sector. SMOs directly related to
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Firm Survival in the Green Building Supply Industry
environmental causes may have a differential impact on social entrepreneurs who seek to address
environmental market failures through (1) providing normative legitimacy for their firms, (2)
fostering market demand for their offerings, and (3) increasing the flow of information to
entrepreneurs related to potential policy opportunities and opposition. In sum, we expect that
based on prior research, that the prevalence of SMOs in a region aligned with social
entrepreneurs in an emerging sector will not only impact entry, but also survival of such
organizations. Thus we hypothesize:
Hypothesis 2: Collective action supporting an emerging sector will be positively related
to the survival of social entrepreneurs in that sector.
Social Norms and Social Entrepreneurship. While the influence of SMOs on
entrepreneurial entry has received recent attention in entrepreneurship research, the influence of
social norms - defined as the unwritten rules of conduct of a group (Elster, 1989) - has been
relatively unexamined. In addition, we could find no studies that examined how social norms
might actually impact the survival of entrepreneurs, rather than their entry (e.g. Meek et al.,
2010). For social entrepreneurs, this is a particularly acute question; we propose that social
norms may influence the survival of social entrepreneurs through two mechanisms: (1) regional
perception of social entrepreneurship as desirable and important and (2) regional perception that
an emergent sector, and the social entrepreneurs within it, are pursuing an important and valuable
opportunity.
Prior studies on social norms and entrepreneurship have largely focused on regional
variation in whether entrepreneurs are socially esteemed (Aldrich & Fiol, 1994; Aldrich, 1999).
For example, if entrepreneurship is viewed as a “foolish” activity in a community, entrepreneurs
will not be held up as examples of bold innovation, but rather, as an example of an undesirable
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Firm Survival in the Green Building Supply Industry
career choice (Manolova, Eunni, & Gyoshev, 2008). Conversely, there is evidence that when
entrepreneurs are perceived as role models, individuals are more likely to see entrepreneurship as
a viable career and socially desirable (Freytag & Thurik, 2010; Tominc & Rebernik, 2007).
Thus, the effect of social norms regarding entrepreneurship on entrepreneurial entry is relatively
clear and intuitive.
However, our understanding of how social norms affect specific opportunities and
practices is far less clear. We propose that this will be a critical consideration for social
entrepreneurs; the degree to which regional norms endorse their activities as normatively correct
and important could be an important determinant of resource allocation. For example, when
social entrepreneurs enter into ecologically relevant industries (i.e. organic foods, green building,
and renewable energy) environmental norms in a region could be a critical consideration. Social
norms related to environmentalism vary across regions (Mazur & Welch, 1999; Mazur, 2010)
and largely influence individuals’ perceptions of environmental degradation (Lubell,
2002)4/23/2015 3:21:00 PM. We argue social norms are likely to influence regional assessments
of the value of entrepreneurship in environmentally beneficial sectors, and therefore survival of
social entrepreneurs in such sectors. Prior studies examining the role of environmental social
norms on entrepreneurial entry have found that these norms were highly correlated with entry in
the solar energy (Meek et al., 2010) and green building (York & Lenox, Forthcoming) sectors.
While this work suggests that environmental norms influenced new entrants, it gives no
indication of whether such entrants are more likely to survive than those in less socioculturally
munificent regions.
We propose that social norms, much like SMOs, act as a resource that will improve the
likelihood of survival for social entrepreneurs. For social entrepreneurs who focus their identity
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Firm Survival in the Green Building Supply Industry
on an emergent socially or environmentally relevant sector, social norms will likely influence
survival by first encouraging actors within a region to support such entrepreneurs both
economically through their patronage, but also psychologically by assessing what they are doing
as normatively “right.” For example, for entrepreneurs in regions highly supportive of norms of
political freedom and self-sufficiency, potential customers may be more interested in supporting
“local” food (Weber et al., 2008) as well as alternative means of assisting impoverished
individuals. Recent work has shown that social identity, that is, how individuals view their
membership in groups such as environmentalists, drives the types of opportunities pursued, by
entrepreneurs as well as the audiences they engage (Fauchart & Gruber, 2011). When
entrepreneurs can align their identity, and the opportunity they pursue, with regional norms we
would expect they would be more likely to persist, and thus survive. For example, Amezuca and
colleagues (2013) found that regional differences in levels of organizational endorsement
enhance resource munificence and affect new firm survival in a study of university business
incubators. In sum, when social entrepreneurs align with the social norms in a region, they will
benefit from adoption of their product, but beyond that, receive consistent confirmatory feedback
from the audiences to which they present their business, products, and mission. Thus we argue:
Hypothesis 3: Social norms supporting an emerging sector will be positively related
to the survival of social entrepreneurs in that sector.
Sociocultural Munificence, Economic Munificence, and Social Entrepreneurship Survival
Beyond the clear linkage between social movements and social norms that are relevant to
the opportunities pursued, and the products and services offered, by social entrepreneurs, we
anticipate that broader, more diffuse, sociocultural munificence will also impact such ventures.
Specifically, we propose that norms of resource distribution, which determine how a society
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Firm Survival in the Green Building Supply Industry
believes valuable capital should be allocated, may influence the ability for social entrepreneurs to
survive.
There are three main resource distribution norms – equality, merit and need (Deutsch,
1975). The default distribution norm is equality but groups tend to deviate from the equality
norm – and distribute resources based either on group member needs or merits. For example,
assume a group has $100 to distribute among the members. The default norm is to distribute it
equally so that each group member gets an equal share of the $100 (Deutsch, 1975). However,
some groups tend to give a greater share of the resources to their highest performing members
(i.e. merit resource distribution norm), and other groups tend to give a greater share of the
resources to their most needy members (i.e. need resource distribution norm; Deutsch, 1975).
We argue that differing resource allocation norms that result from regional political
norms will either mute or amplify the effects of economic munificence on social entrepreneurs’
survival rate (Deutsch, 1975). Politically liberal regions tend to distribute resources based on
need, such that the most needy individuals tend to receive the greatest share of resources (Grote
& Clark, 1998). Individuals abiding by a need-based resource allocation norm tend to feel
responsibility for meeting others' needs (Clark & Finkel, 2005), have greater concern for those
around them (Eagly & Steffen, 1984), and tend to be more willing to harm their own economic
self-interest in order to help others (Thompson & DeHarpport, 1998). These allocation norms
should be particularly important for social entrepreneurs attempting to allocate resources towards
solving economic market failures. Not surprisingly, this need-based resource allocation norm is
most commonly found in regions with high levels of "close kinship ties" (Fiske, 1992: 692;
Khayesi & George, 2011; Meek et al., 2010). Accordingly, densely populated areas are more
politically liberal perhaps because individuals in such urban centers are physically closer to their
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Firm Survival in the Green Building Supply Industry
neighbors and thus cannot ignore the less fortunate in their midst (“What Republicans Are Really
Up Against,” n.d.).
Applied to social entrepreneurship, we expect regions with a high percentage of
politically liberal citizens to have a heightened tendency to have a strong need-based norm of
resource allocation (Khayesi & George, 2011). When these regions face difficult economic
conditions, social entrepreneurs would be able to claim a greater share of regional resources
because they have relatively greater economic needs (i.e. they need to keep their business from
going bankrupt), which would decrease their chances of failure during such difficult economic
conditions. A regional norm of political liberalism is then a type of sociocultural munificence in
difficult economic conditions because it enables entrepreneurs to claim a greater share of the
region's resources. However, regional need-based resource allocation norms resulting from
political liberalism may act as a drag on social entrepreneurial ventures during favorable
economic conditions. Under such conditions, entrepreneurs would likely be viewed as doing
quite well for themselves financially. Certainly, they would encounter many others in their
region who have greater needs than they themselves do and may thus feel compelled to "share
the wealth" with these less fortunate individuals.
Because social entrepreneurs are expected to have broader goals than pure profitmaximization, they may feel especially obligated to provide resources (e.g. employment,
contracts) to individuals in their region based on need rather than merit (Khayesi & George,
2011). Thus, the need-based resource allocation norms resulting from political liberalism may act
as a double-edged sword, buffering social entrepreneurs from the economy in bad economic
times, and draining their resources in good economic times. In other words, regions with high
levels of political liberalism are financially "sticky," such that it is hard for entrepreneurs to get
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Firm Survival in the Green Building Supply Industry
too far behind in bad times, and hard for them to get too far ahead in good times. In sum, we
expect that regional norms of political liberalism will diminish social entrepreneurial chances of
failure in difficult economic conditions, and enhance their chances of failure in munificent
economic conditions.
In contrast, politically conservative areas tend to have a merit-based resource allocation
norm, so that members of the community who work harder and are more talented get more
resources. This is evidenced by conservative activist Charles Koch who borrows from Marx to
create his own maxim, “From each according to his ability, to each according to his
contribution.” (“Koch’s Laws,” n.d.) This merit-based resource allocation norm produces a
positive feedback loop between success and resources, such that successful individuals are able
to claim more resources from those around them, which fuels further success and even more
resources.
In contrast, struggling individuals have less legitimacy and have a diminished capability
to claim resources, which further increases their chances of failing, and further diminishes the
resources they attain. We expect regions with strong conservative political norms to have a
strong merit-based norm of resource allocation (Khayesi & George, 2011). Thus, when highly
conservative regions face difficult economic times, social entrepreneurs will tend to suffer
financially, which will decrease their ability to claim regional resources, thereby increasing their
chances of failure during such difficult economic conditions. A regional norm of political
conservatism is then a type of sociocultural burden in difficult economic conditions because it
diminishes entrepreneurs' abilities to claim a greater share of the region's resources. However,
regional merit-based resource allocation norms resulting from political conservatism may act as a
form of sociocultural munificence to social entrepreneurial ventures during favorable economic
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Firm Survival in the Green Building Supply Industry
conditions. Under such conditions, entrepreneurs would tend to thrive and would thus likely be
viewed by those around them as some of the most worthy candidates for more resources.
Following this logic, the merit-based resource allocation norms resulting from political
conservatism may act as a double-edged sword, enhancing the harmful effects of the economy in
bad times, as well as enhancing the beneficial effects of the economy in good times. In other
words, regions with high levels of political conservatism are financially "slippery," such that
failure is more likely in bad times and survival is more likely in good times. In sum, we expect
that regional norms of political conservatism will increase social entrepreneurs’ chances of
failure in difficult economic conditions, and diminish their chances of failure in munificent
economic conditions, leading us to hypothesize:
Hypothesis 4: Economic munificence will be more positively related to social
entrepreneurs’ survival when a region has high levels of political conservatism norms
(i.e. merit-based resource allocation); that is political conservatism will increase social
entrepreneurs’ survival chances when economic munificence is high, and decrease social
entrepreneurial survival chances when economic munificence is low.
DATA AND METHODS
Context
We test our theory utilizing a unique panel of 861 ventures in the green building supply
industry, over the period 1999-2007. Following Santos (2009) and Zahra et al. (2009), in this
study we define social entrepreneurs as individuals who create organizations that seek to create
“total wealth” (Zahra et al, 2009: 519), generating economic income while provisioning
neglected positive externalities under conditions of market failure (Santos, 2009 20). Because the
environmental and health benefits of green building are inherent to this industry (Eichholtz, Kok,
& Quigley, 2010; Hoffman & Henn, 2008; York & Lenox, Forthcoming), green building
provides a robust setting to better understand how the macro environment influences the survival
17
Firm Survival in the Green Building Supply Industry
of social entrepreneurs who seek to address to create both economically and ecologically
sustainable products and services.
We test our hypotheses by examining firm survival in the green building supply industry.
We chose this industry for several reasons. First, as our research question is how the
sociocultural environment impacts the survival of social entrepreneurs, we needed to identify an
industry in which new entrants could be considered to be “neglected positive externalities”
(Santos, 2009: 20). As green building is defined as a process of “design and construction
practices that significantly reduce or eliminate the negative impact of buildings on the
environment and occupants” (USGBC, 2004), new entrants that seek to operate in this industry
meet these criteria. Second, in view of the amorphous nature of social and environmental
entrepreneurship, researchers have struggled to construct any reliable records of entrepreneurial
entry and exit. The green building supply industry does have reliable and reasonably detailed
data along this line, as described in the next section. Third, because we were specifically
interested in the impact of the sociocultural environment, it was necessary to identify an issue
that is clearly defined, considered important by specific social movement organizations, and is
representative of a larger social norm, (e.g. environmentalism). Because green buildings are
designed to use less energy, water and reduce the overall life cycle of environmental impacts
through improved sitting design, material selection and construction, they are deemed very
desirable by environmentalists. Finally, because green building is an emergent, specialized sector
within the construction industry, it provides ample opportunity for examining the births and
deaths of new firms.
18
Sample
Firm Survival in the Green Building Supply Industry
Unlike previous research on social entrepreneurship that largely relies on small samples
and qualitative analysis of a particular venture (Short et al., 2009; Dacin, 2011) our dataset is a
representative snapshot of social entrepreneurs who entered and exited the green building
industry, 1999-2007 (the last full year for which these data were available).
To identify social entrepreneurs entering and exiting the green building supply sector, we
utilized the GreenSpec Directory of green building products and suppliers created by Building
Green, a non-profit organization focused on promoting green building practices (BuildingGreen,
2007). The GreenSpec directory has been published annually every year since 1999 (with the
exception of 2004) and identifies products screened on a criteria including conserving natural
resources, saving energy or water, or avoiding toxic emissions. For each product, the directory
identifies the firm providing the product, as well as the address of the firm. Our use of a directory
as a proxy for measuring new firm entry and exit follows prior studies in the organizational
ecology and entrepreneurship literature (Baum & Singh, 1994; Carroll & Hannan, 2000; Chen,
Williams, & Agarwal, 2012).
Following prior work in entrepreneurship (Amezcua et al., 2013; Evans, 1987; Fritsch &
Mueller, 2004; McDougall, Oviatt, & Shrader, 2003; Reynolds & Curtin, 2009, 2010) which has
designated new firms to be those 5-8 years old, we then parsed the data based on a founding date
of 1994 or later. We chose 1994 because 1994 for was 6 years prior to our first listing in the
GreenSpec directory (2000). In addition, the US Green Building Council was founded in 1994,
so for the purposes of examining green building, 1994 represents a shift when green building
became more nationally known as an emerging sector.
19
Firm Survival in the Green Building Supply Industry
The resulting dataset consists of 861 firms observed over 8 years. Given constraints in the
availability of data for our measure of environmental social norms (discussed below), we test our
hypotheses on a sample of 45 U.S. states when utilizing this data, thus leading to a total data set
of 360 state-year observations. These analyses exclude the states of Nebraska, New Hampshire,
Nevada, Rhode Island, and Utah (since these states are not included in the General Social Survey
[GSS] data from which we measure state-level social norms). Further assessment of new firm
entry in these states suggests that there are no statistical differences between the populationadjusted mean firm entry in green building supply in these states as compared to the rest of the
sample (t=.102; p=.921).
Dependent and Independent Variables
Firm Exit. The dependent variable in our study is Firm Exit, which is coded annually
when a firm is no longer listed in the GreenSpec directory. Our final sample consisted of 861
firms, 278 of which exited during our period of observation.
Sector Economic Munificence. We measured economic munificence specifically in
green building by the count of newly certified LEED buildings in a state during a given year
(LEED Certified Buildings). As the LEED certification process can take from six months to two
years after submission, this variable contains a natural lag. The US Green Building Council
provided these data directly to the authors.
Collective Action. We operationalize the presence of collective action supporting the
green building supply industry through measuring the state-level presence of the USGBC.
USGBC Membership is the number of USGBC members in a given state-year. These data were
provided by the USGBC and coded as a count variable. To be clear, USGBC membership is not
necessary for LEED certification. While some USGBC members have projects that receive
20
Firm Survival in the Green Building Supply Industry
LEED certification, the majority of this sample was composed of other groups such as
contractors and builders (34.2%), consultants (13.4%), architects (7.7%), engineers (9.6%), nonprofits (5.2%), local governments (3.1%), and a myriad of other organization types including
accountants, attorneys, landscape architects, trade associations, and utilities interested in
advancing green building and sustainable communities.
Social Norms Supporting the Sector. We utilized a direct measure of the social norm of
environmentalism (Environmental Social Norms) taken from the Sensitive Data Files of the
General Social Survey (GSS) conducted by the National Opinion Research Council (NORC). 1
The GSS is a multistage, stratified sample of American society with a data-collection program
designed to monitor social change within the United States (Davis, Smith, & Marsden, 2001). It
is a widely used social science data source that has been utilized by researchers in sociology,
economics and political science. Some of the social norms examined in prior research include
family interdependence and satisfaction (Buchmann & DiPrete, 2006; Kiecolt, 2003), trust and
cooperation (Gächter, Herrmann, & Thöni, 2004), cultural conformity (Gibson, 1992; Van der
Slik & Driessen, 2005), and environmentalism (Lubell, 2002). For an overview of the GSS
survey method and sample please see Davis et al. (2001). We utilized data from the GSS
conducted in the years 2000, 2002, 2004 and 2006. The survey consists of a series of questions
that measure individuals’ opinions on a variety of topics, including environmental issues.
Following prior research in the geography of environmental social norms in the United States
(Mazur & Welch, 1999; Meek et al., 2010), we used the following question from the GSS:
We are faced with many problems in this country, none of which can be solved
easily or inexpensively. I'm going to name some of these problems and for each
1
The Sensitive Data Files were obtained under special contractual arrangements designed to protect the
anonymity of respondents. These data are not available from the authors. Persons interested in
obtaining GSS Sensitive Data Files should contact the GSS at [email protected].
21
Firm Survival in the Green Building Supply Industry
one I'd like you to tell me whether you think we're spending too much money on
it, too little money, or about the right amount.
One of the “problems” described is “Improving and protecting the environment”; we coded
responses of “spending too little” as environmentalism, and collapsed responses by the median
response for the state for each year. We then linearly interpolated the score for missing years
using the ipolate command in Stata.
Resource Allocation Norms. We measured the resource-allocation norms in a region,
from the the prevalence of liberal (need-based) versus conservative (merit-based) political
orientation, using the following question from the GSS:
We hear a lot of talk these days about liberals and conservatives. I'm going to
show you a seven-point scale on which the political views that people might hold
are arranged from extremely liberal--point 1--to extremely conservative--
point
7. Where would you place yourself on this scale?
This item is the most established measure of political orientation (Graham, Haidt, & Nosek,
2009). Again, for this measure we collapsed responses by the median response for the state for
each year. We then linearly interpolated the score for missing years using the ipolate command
in Stata.
Control Variables
We control for a variety of factors that may have also impacted the survival of social
entrepreneurs in the emerging green building sector. At the firm-level, we matched our sample of
firms with data from the Dun & Bradstreet NETS database and controlled for the annual Firm
Sales, as well as the Firm Number of Employees. Since higher quality entrepreneurs are more
likely to survive, we used these two measures to account for heterogeneity in the quality of
ventures in our sample. We also include a range of controls at the state-level as described below,
22
Firm Survival in the Green Building Supply Industry
in addition to a full set of state dummy variables (state fixed effects) to account for stable
unobserved differences between states.
First, state electricity prices (Energy Price) can impact adoption of practices that reduce
consumption of power, and thus entry (Sine, Haveman, & Tolbert, 2005), therefore we controlled
for states’ average retail price with data obtained from U.S. Energy Information Agency. Second,
we controlled for the organizational density of the green building sector (Field Density),
measured as the log of the total number of green building companies known to exist in a state for
the previous year. Third, we measure supportive regulatory institutions as the implementation of
policies that supported the adoption of green building at both the state and local level. We
gathered data on State Policies for Green Building by U.S. state from an online database of
incentives provided by the USGBC and from the Database of State Incentives for Renewables
and Efficiency (DSIRE). Policies enacted at a city or county level were included in our count for
the state in which the city or county resides. All policy measures were coded as cumulative
continuous counts. Fourth, we included we included a measure of the overall rate of construction
in a state by including the number of new commercial building permits issued (Commercial
Construction) in that region. These data were provided by Reed Construction Data and are
available from their website at www.reedconstructiondata.com. Fifth, we controlled we
controlled for the population in each state (State Population). Finally, we also controlled for the
level of Sierra Club membership in a state (Sierra Club Membership) consistent with prior
studies that have found Sierra Club membership to influence environmentally relevant
entrepreneurship (Sine & Lee, 2009).
23
Model and Analysis
Firm Survival in the Green Building Supply Industry
To investigate our hypotheses we used a Cox proportional hazard regression model (stcox
command in Stata), modeling the likelihood of firm exit in a calendar year. Our observation
window runs from the period 1999-2007 and consists of 1,349 unique firms. The dataset is
structured so that we have a set of annual observations for each firm, hence allowing for model
covariates to vary by time (Allison, 1995) reducing the number of firms in our baseline model to
861. Left-side truncation is not an issue in our sample given that our data collection window
starts with the initial GreenSpec directory publication, a proxy for the birth of the green building
industry upon introduction of the LEED certification standard in 2000. The model structure
accounts for right-side truncation in the sample, given that we end our observation period at
2007.
RESULTS
Our descriptive results indicate 278 of the 861 firms that we were able to observe across
2,875 firm-year observations exited during the time period 1999-2007. Therefore, while an exit
event is relatively infrequent for any given year (~9.6%), approximately 29% of the firms in the
sample failed (i.e. exited) over the course of the study period. Table 1 below shows descriptive
statistics and pairwise correlations between the variables in our model.
------------------------------Insert Table 1 about here
------------------------------The results of the multivariate analysis are shown in table 2. Note that we mean-centered
and normalized all covariates to facilitate the interpretation of results. In model 1, we estimated
the main effects of our model control variables. In terms of statistically significant control
variables, we find that firms are less likely to fail in states with larger populations and more
likely to fail in states with a higher level of commercial building activity. Surprisingly, we also
24
Firm Survival in the Green Building Supply Industry
find that larger firms, as measured by those with more employees, are more likely to exit the
industry in any given year, although the coefficient of this variable is not statistically significant.
-----------------------Insert Table 2 Here
-----------------------In model 2, we estimated the main effects of the economic munificence, collective action
and environmental social norms variables. In lieu with previous research that has found mixed
results for the impacts of economic munificence, we find weak statistical support of hypothesis
1, such that an increase in industry economic munificence by 1 standard unit decreases the
probability of firm exit by ~9% (coefficient=-0.32, odds ratio=0.72, p=0.077). With respect to
the socio-cultural munificence variables, we found that a 1 unit increase in USGBC membership
in a state (collective action) decreased the probability of firm exit by ~37 % (coefficient=-1.88,
odds ratio=0.15, p=0.002), while a 1 unit increase in environmental social norms decreased the
probability of firm exit by 7% (coefficient=-0.27, odds ratio=0.76, p=0.018) in a given calendar
year. Hence both hypotheses 2 and 3 are strongly supported by our data.
Lastly, in model 3, we estimated the conditioning effects of political norms (i.e. the
degree to which states are liberal or conservative), which we use as proxies of norms of resource
allocation. We found that political norms in a state condition the negative relationship between
industry economic munificence and firm exit (coefficient=-0.51, odds ratio=0.61, p=0.025).
Hence, hypothesis 4 is strongly supported by our data. Figure 1 below illustrates this dynamic by
plotting survival curves for each of the conditions (high economic munificence-conservative
norms, high economic munificence-liberal norms, low economic munificence-conservative
norms, low economic munificence-liberal norms), where high and low conditions refer to
variable values 1 standard deviation above and below the mean value respectively. As can be
25
Firm Survival in the Green Building Supply Industry
visually observed, the presence of conservative norms amplifies the negative relationship
between industry and economic munificence and firm exit, while an increase in liberal norms
dampens this relationship (a large gap between the solid and dashed line vs. the two dashed lines
respectively).
-----------------------Insert Figure 1 Here
------------------------
DISCUSSION & CONCLUSION
In this study we found that both economic and sociocultural munificence were significant
predictors of the survival of social entrepreneurs entering into an emerging sector. While prior
work has shown the importance of the economic environment for an emerging sector, we expand
these studies by relating economic munificence directly to the survival of entrepreneurs that seek
non-economic goals. In addition, we found that alignment with active social movements as well
as regional social norms can increase the survival likelihood of social entrepreneurs. Finally, we
found that political norms of conservatism can enhance the impact of the economic environment
on survival of social entrepreneurs; when an emerging sector is experiencing strong demand and
growth, politically conservative norms of merit-based allocation will provide support for social
entrepreneurship. However, when economic conditions sour, such norms will enhance the impact
of economic scarcity, and be associated with higher failure rates. These findings make a
contribution to the literature examining the relationship between institutions and
entrepreneurship, the social entrepreneurship literature, and to our understanding of industry
emergence.
First, we expand on studies that examine the relationship between the institutional
environment and entrepreneurship. While prior studies have shown that both social movement
26
Firm Survival in the Green Building Supply Industry
and social norms can impact entrepreneurial entry above and beyond the regulatory and
economic environment, ours is the first study, to our knowledge, which looks at how such forces
impact survival. We thus expand on Hiatt et al.’s (2009) study that showed how social movement
activism could impact the failure of targeted businesses, to illustrate how supportive movements
can help firms to survive in nascent industries. In addition, while prior studies have examined
how social norms impact entrepreneurial entry (Meek et. al., 2009; York & Lenox, Forthcoming)
we build on this emerging literature to show how sociocultural munificence, in the form of
aligned social norms may help buoy the efforts of social entrepreneurs. Beyond these
contributions, we examined the broader sociocultural environment to better understand how
broad-based, more highly diffused norms, such as political preferences may intact with economic
conditions. We show that the effect of social norms may not simply be supportive or destructive
for emergent sectors, but may be dependent on the economic environment.
Second, for social entrepreneurship, we offer one of the first empirical studies to directly
examine how the informal, normative institutional environment impacts the survival of social
entrepreneurs. While many studies have articulated the motivations and actions of social
entrepreneurs, we examine how such ventures can enhance their chances for success. Third, we
expand the literature on industry emergence by detailing how sociocultural munificence may
offer a substitute, or complement, to the economic munificence experienced by an emerging
sector.
As with any empirical study, ours has some weaknesses. First, while we were able to
control for some firm-level factors (e.g. number of employees, firm sales), we do not have more
detailed information on the rationale or specific reasons behind firms’ exit decisions. For
instance, founders of firms might choose to voluntarily exit the industry (e.g., De Tienne,
27
Firm Survival in the Green Building Supply Industry
Shepherd, & De Castro, 2008). Recognizing these caveats, we highlight that our research design
is consistent with prior empirical studies that equate exit to failure. Furthermore, while additional
firm level controls would also be preferable, the panel design of our study should account for
some unobserved firm effects over time. Another potential concern is that we offer only
interactions for our political views variable. While we attempted interactions between the
economic munificence, collective action, and environmental norms variables, such interactions
were not statistically significant. This actually supports our findings overall, as it implies that the
impact of SMO activity and prevalent, aligned norms in a region are not dependent upon
economic conditions.
This study has important implications for both social entrepreneurs, and those who would
support their efforts. For social entrepreneurs, our findings suggest that entering into regions in
which aligned SMOs are more highly active can increase their odds of creating a sustainable
organization. Further, social norms may complement such forces. Regarding our findings on
political norms, the recommendation is more dependent on the preferences of the social
entrepreneur. For those entering into a sector that is experiencing strong demand and increased
adoption, entering into more politically conservative regions may increase even further their
survival rate. However, if the economic munificence of the sector is low, social entrepreneurs
would be far more benefited by entering politically liberal regions. Thus, our findings suggest a
“risk and reward” model for social entrepreneurs. If they wish to lessen the impact of boom and
bust economic conditions, overall, their best move is to locate in regions with more needs-based,
liberal political views.
The current study offers only a glimpse into the potential for understanding the impact of
sociocultural munificence on entrepreneurs’ chances of survival. Our hope is that it begins to
28
Firm Survival in the Green Building Supply Industry
strengthen our understanding not only the effects of social entrepreneurs on society, but also the
effect of the sociocultural environment on social entrepreneurs.
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Firm Survival in the Green Building Supply Industry
Table 1. Descriptive Statistics and Correlation Matrix
Variable
Mean Std
1
1. Firm Exit
0.85 0.36
2. Firm Sales (Millions)
7.85 30.90 0.01
3. Firm Number of Employees
49.93 143.46 0.01
4. Energy Price
8.51 2.69 0.01
5. Field Density
8.32 8.00 -0.02
6. Sierra Club Membership (1000's)
38.17 52.81 0.01
7. State Policies for Renewable Energy
0.27 0.83 0.00
8. Commercial Building Activity
656.68 556.64 0.01
9. State Population (Millions)
12.41 10.92 0.01
10. Sector Economic Munificence
2.83 4.00 0.05**
11. Collective Action
164.01 367.28 0.02
12. Social Norms Supporting the Sector
1.44 0.21 0.03
13. Resource Allocation Norms
4.10 0.31 0.01
*p<0.05, **p<0.01, ***p<0.001
2
3
4
5
6
7
8
9
10
11
12
0.86***
-0.03
-0.03
-0.03
0.01
-0.01
-0.02
-0.01
-0.01
0.02
0.02
-0.05**
-0.05**
-0.05**
-0.01
-0.03
-0.04**
-0.04*
-0.04*
0.01
0.03
0.41***
0.55***
0.09***
0.38***
0.50***
0.39***
0.35***
0.25***
-0.20***
0.78***
0.13***
0.53***
0.77***
0.49***
0.56***
-0.01
-0.30***
0.08***
0.64***
0.91***
0.46***
0.40***
-0.01
-0.31***
-0.03
0.13***
0.33***
0.32***
0.21***
-0.36***
0.85***
0.45***
0.34***
0.01
-0.02
0.52***
0.46*** 0.74***
0.04*
0.14*** 0.10***
-0.22*** -0.20*** -0.21*** -0.31***
34
Firm Survival in the Green Building Supply Industry
Table 2. Proportional Hazards Cox Model Estimating the Likelihood of Firm Failure
VARIABLES
Model 1
Model 2
Model 3
Firm Salesa
-0.27
(0.22)
-0.30
(0.22)
-0.30
(0.22)
Firm Number of Employeesa
0.19
(0.14)
0.22
(0.14)
0.23
(0.14)
-0.20
(0.25)
0.03
(0.12)
0.84
(1.73)
-0.24
(0.16)
0.52*
(0.27)
-7.42**
(3.12)
0.23
(0.28)
0.07
(0.12)
-5.04**
(2.29)
0.11
(0.20)
-0.00
(0.32)
1.04
(3.96)
0.21
(0.28)
0.04
(0.12)
-2.76
(2.49)
0.02
(0.21)
0.24
(0.35)
-0.09
(4.02)
-0.32*
(0.18)
-1.88***
(0.62)
-0.27**
(0.12)
-0.38**
(0.18)
-1.89***
(0.63)
-0.29**
(0.12)
Firm-Level Controls
State-Level Controls
Energy Price
Field Density
Sierra Club Membership
State Policies for Renewable Energy
Commercial Building Activity
State Population
Economic & Sociocultural Munificence
Sector Economic Munificence
Collective Action
Social Norms Supporting the Sector
Resource Allocation Normsc
-0.32
(0.21)
-0.51**
(0.23)
Sector Economic Munificence*Resource Allocation Norms
State-Fixed Effects Included
Observations
Firms
Failures
Model Chi-square
Standard errors in parentheses.
*p<0.1, ** p<0.05, *** p<0.01
a
Yes
2,875
861
278
68.60
Yes
2,774
832
269
93.48
Yes
2,774
832
269
98.61
We replaced missing values for firm-level controls with the industry mean (by year).
b
All variables were mean-centered and standardized prior to analysis. Note that negative coefficients
indicate decreased likelihood of firm exit (i.e. increase likelihood of firm survival)
c
Lower values of this variable correspond to more liberal (i.e. need-based) resource allocation norms.
35
Firm Survival in the Green Building Supply Industry
Figure 1. Moderating Impacts of Resource Allocation Norms on Economic Munificence
(Hypothesis 4 in Study)
As illustrated below, the relationship between industry economic munificence and firm survival
is amplified in conservative states (with merit-based resource allocation norms) while suppressed
in liberal states (with need-based resource allocation norms)
36