Decisions of firm risk and the role of organizational identity

Due to risk aversion, nonprofit firms are believed to have a lower propensity to innovate than forprofits. In turn, social enterprises have arisen as a popular alternative to nonprofits under the expectation that their for-profit practices will lead to increased social innovation. Yet, hybrid firms...

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Bibliographic Details
Published in:Small business economics 2021-06, Vol.57 (1), p.1-21
Main Author: Graddy-Reed, Alexandra
Format: Article
Language:English
Subjects:
Behavior
Business and Management
Companies
Entrepreneurship
Industrial Organization
Innovations
Management
Microeconomics
Nonprofit organizations
Private sector
Profits
Risk
Risk behavior
Risk taking
Roles
Social entrepreneurship
Social innovation
Uncertainty
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Summary:Due to risk aversion, nonprofit firms are believed to have a lower propensity to innovate than forprofits. In turn, social enterprises have arisen as a popular alternative to nonprofits under the expectation that their for-profit practices will lead to increased social innovation. Yet, hybrid firms face uncertainty in their organizational identity, which may detract from their propensity to innovate. Further, there is little empirical work on the actual differences of risk-taking outside of for-profit firms. This paper assesses how the organizational identity of a firm impacts their decisions of risk. Using survey data from the US state of North Carolina, logistic estimations reveal that organizational identity has differential impacts across firm structures. Specifically, for-profit firms benefit from an entrepreneurial identity, while nonprofit firms are hindered by a hybrid identity. This paper provides important developments in our understanding of the role of organizational identity on risk-taking behavior beyond traditional for-profit firms.
ISSN:0921-898X
1573-0913
DOI:10.1007/s11187-019-00290-2