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Decisions of firm risk and the role of organizational identity

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Abstract

Due to risk aversion, nonprofit firms are believed to have a lower propensity to innovate than for-profits. 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.

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Notes

  1. This question structure follows the USDA ERS Rural Innovation Survey, US BRDIS, Community Innovation Survey, UK Innovation Survey, and the Canadian Survey of Innovation & Business Strategy.

  2. Due to sample size limitations, it is not feasible to estimate the model solely on hybrid firms.

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Acknowledgments

I thank Maryann Feldman and Dawn Trembath for their help in designing and distributing the North Carolina Social Innovation Survey. I also thank Elsa Carolina Mantilla Garcia, Jongmin Choi, and Madison Rivers for their work on the survey data. I thank Glenn Hoetker and participants of the 2017 Academy of Management conference for their comments. This research was funded in part by the Sol Price Center for Social Innovation. Any opinions, conclusions, or recommendations expressed in this material are those of the author and do not necessarily reflect the views of the funder. There are no conflicts of interest to report.

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  1. Price School of Public Policy, University of Southern California, 650 Childs Way, Los Angeles, CA, 90089-0626, USA

    Alexandra Graddy-Reed

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Appendix

Appendix

Table 8 Sample selection
Full size table
Table 9 Additional descriptive statistics
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Survey methodology

The North Carolina Social Innovation Survey was designed to assess the social practices of firms in the US state of North Carolina. The survey was administered in two years: 2012 and 2014. The state does not collect email addresses with business licenses so no comprehensive electronic mailing list exists, prohibiting a random sample. Instead multiple distribution lists were used to create a sample with statewide distribution. In the 2012 round, seven lists were used, while 14 were used in 2014. In sum, nine lists have a statewide distribution while five are region-specific. Four lists were across firm structures, five were specific to for-profit firms, four to hybrids, and one to nonprofits. Three of the hybrid lists were populations of cooperatives, L3Cs, and B-corps. These were only used in the 2014 round. The mailing lists used to distribute the survey were a mix of proprietary (seven) and publicly compiled (seven) to provide geographic, firm structure, and industry variation.

The survey was distributed via email with information on the project and a link to the survey. Three reminders were sent every 2 weeks. The survey was web-based and managed in Qualtrics to provide anonymity and confidentiality. No incentives were offered for completion. Response rates by list ranged from six to 43 percent in 2014 and 12 to 46 percent in 2012. The average response rate was 28% in 2014 and 21% in 2012.

The survey consisted of 25 multiple choice or short answer questions and took approximately 15 min. The first section collected information on organizations’ demographics. In the 2014 round, cooperatives, L3Cs, and nonprofits were also shown a subset of structure-specific questions. The second section asked about economic conditions and firm performance. Next, the survey collected information on the organization’s environmental, community, and employment practices. The final section asked about the firm’s mission and industry. The 2012 round also asked about the position of the respondent within the organizations. Respondents were overwhelmingly in leadership positions; for example, 37% were owners and 32% CEOs. Only 12% responded as employees. Advanced skip patterns eliminated irrelevant questions. The survey was pre-tested with a group of researchers and practitioners representing different organization types.

While the survey has broad response from across the state and organization types, the sample is not perfectly representative. Specifically, there were no responses from 29 counties in 2012 and eleven counties in 2014 of the one-hundred counties in North Carolina. The majority of these were Tier 1 rural counties. However, the survey sample actually overrepresents rural firms. Rural firms account for 41% of the survey sample but 33% of the state’s establishments with employees. Suburban firms are well represented with 26% of the survey compared to 24% of the state. Urban firms are slightly underrepresented accounting for 33% of the survey compared to 43% of the state. Regarding economic distress tiers, the survey is fairly representative of the state distribution with 57% of the sample in tier 3 counties compared to 56% of the state’s firms. Tier 1 firms are slightly overrepresented accounting for 19% of the sample compared to 12% of the population while Tier 2 firms account for only 24% of the sample but 32% of the population.

There are limitations in the survey analysis from self-selection and possible non-response bias of firms that do not identify with providing social practices. Since the survey was only distributed through email and available online, some possible respondents that lack internet access were unable to respond. This is a limitation of all internet-based surveys. Additionally, the survey is at risk for survival-bias by only collecting information on organizations in operation.

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Graddy-Reed, A. Decisions of firm risk and the role of organizational identity. Small Bus Econ 57, 1–21 (2021). https://doi.org/10.1007/s11187-019-00290-2

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