Sector Legitimacy and Financial Sustainability of Organizations: Evidence from the Indian Microfinance Crisis

Posted: 10 Oct 2018

Date Written: October 10, 2018

Abstract

Research suggests that organizational viability may depend on the extent to which a sector is viewed as socio-politically legitimate. However, for what kind of organizations does the loss of sector legitimacy most affect financial sustainability? Econometric analyses using the Indian microfinance crisis of 2010 as a natural quasi-experiment, supplemented by text analysis of related news media articles, suggest that loss of sector legitimacy does lead to a decline in the financial sustainability of organizations. However, for-profit organizations show a greater decline than non-profit organizations. We further investigate the differences in the impact on financial sustainability across for-profit organizations. Large firms suffer more negative impact than small firms, whereas firms with low financial slack suffer more negative impact than those with high financial slack.

Keywords: Sector Legitimacy, Financial Sustainability, Nonmarket Strategy, Microfinance, Natural Quasi-experiment

Suggested Citation

Adbi, Arzi, Sector Legitimacy and Financial Sustainability of Organizations: Evidence from the Indian Microfinance Crisis (October 10, 2018). INSEAD Working Paper No. 2018/46/STR. Available at SSRN: https://ssrn.com/abstract=3263955

Arzi Adbi (Contact Author)

INSEAD ( email )

Singapore

HOME PAGE: http://www.insead.edu

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