Abstract

http://ssrn.com/abstract=2191148
 
 

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The Persistence of Lenient Market Labels


Elizabeth G. Pontikes


University of Chicago - Booth School of Business

William P. Barnett


Stanford Graduate School of Business

May 1, 2012

Chicago Booth Research Paper No. 12-60
Rock Center for Corporate Governance at Stanford University Working Paper No. 167

Abstract:     
Research across disciplines presumes that markets will have strong boundaries. Markets without well-defined boundaries typically are not useful and do not become institutionalized, so are expected to fade away. In contrast, we suggest that in many contexts lenient markets or market labels with porous boundaries, persist and become important. This can be explained by looking at both market entry and market exit. Consistent with prior research, we suggest that lenient market labels offer less credibility than labels with strong boundaries, and so organizations will be more likely to exit these markets. At the same time, lenient market labels are more accepting of many different types of organizations. As a result, we expect lenient labels to also have high rates of entry. When entry rates are higher than exit rates, lenient markets will endure over time. We also predict that organizations exiting lenient labels will enter other lenient labels, which further fuels their persistence. Finally, this trend is exaggerated when influential external agents favor leniency. We find support for these ideas in a longitudinal analysis of organizational entry into and exit from market labels in the software industry.

Number of Pages in PDF File: 55

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Date posted: December 19, 2012 ; Last revised: January 14, 2014

Suggested Citation

Pontikes, Elizabeth G. and Barnett, William P., The Persistence of Lenient Market Labels (May 1, 2012). Chicago Booth Research Paper No. 12-60; Rock Center for Corporate Governance at Stanford University Working Paper No. 167. Available at SSRN: http://ssrn.com/abstract=2191148 or http://dx.doi.org/10.2139/ssrn.2191148

Contact Information

Elizabeth G. Pontikes (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
William P. Barnett
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

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