Events

Ms. Jiang Bian
Ph.D. Candidate in Management Science & Engineering
Stanford University

Young firms strive to establish relationships with the users of their products and services. These relationships facilitate direct resource access and signal legitimacy to external stakeholders. Yet, young firms’ relationships with their users are often multiplex and involve overlapping ties across different domains, triggering different types of legitimacy evaluations. We examine how incongruent legitimacy signals derived from multiplex firm-user relationships affect firms’ decisions to retain or dissolve ties in a specific domain. We exploit a quasi-natural experiment in the medical device industry provided by the staggered rollout of state-level sunshine laws, which offers exogenous variation in legitimacy concerns associated with firm-physician relationships. Using a difference-in-differences analysis of 539 device ventures and their physician partners over a 12-year study period, we show that illegitimacy associated with firm-physician ties in the sales and marketing domain propagates to the research and development (R&D) domain. This crossdomain propagation of legitimacy concerns leads to reduced R&D ties of device ventures with physicians despite the potential benefits of those ties. Our findings contribute to research on legitimacy multiplicity, network dynamics and firm-user collaborative innovation. The findings also contain policy implications.