EXPLORING THE SOCIOCULTURAL DETERMINANTS OF DE NOVO VERSUS DE ALIO ENTRY IN EMERGING INDUSTRIES

Strategic Management JournalStrat. Mgmt. J. (2013)

Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2187

Received 20 July 2012 ; Final revision received 26 August 2013

EXPLORING THE SOCIOCULTURAL DETERMINANTSOF DE NOVO VERSUS DE ALIO ENTRY IN EMERGINGINDUSTRIES

JEFFREY G. YORK1* and MICHAEL J. LENOX2

1 Leeds School of Business, University of Colorado at Boulder, Boulder, Colorado,U.S.A.2 Darden Graduate School of Business, University of Virginia, Charlottesville,Virginia, U.S.A.

The influence of institutional factors on firm entry has long interested strategy scholars.However, we have limited understanding of how the sociocultural environment, defined as theunwritten, decentralized “rules of the game,” influences founding rates in emergent industries;we know even less about how these noneconomic factors differentially influence entry by newentrepreneurial (de novo) firms versus diversifying incumbent (de alio) firms. Utilizing a uniquedataset on entry in the green building supply industry, we find that, while economic and policyfactors are highly correlated with de alio entry, the sociocultural environment exerts a greaterinfluence on de novo firms. Our findings contribute to the literature on corporate demography,institutions and entrepreneurship, and industry emergence. Copyright 2013 John Wiley &Sons, Ltd.

INTRODUCTION

Emergent industries are comprised of both newand diversifying firms. The heterogeneity instrategies (Fan, 2010; Khessina and Carroll, 2008;Klepper and Simons, 2000), timing (Klepper andGraddy, 1990; Mitchell, 1989, 1991), and perfor-mance (Carroll et al., 1996; Ganco and Agarwal,2009) of de novo (entrepreneurial start-ups) andde alio (diversifying incumbents) firms duringindustrial emergence has become a classic themeof the strategic management literature. Yet, thedeterminants of entry by de novo versus de aliofirms remain unclear. Given the broad findingthat de alio firms are more likely to survive and

Keywords: de novo entry; social norms; institutionalenvironment; sociocultural environment; environmentalentrepreneurship; green building*Correspondence to: Jeffrey G. York, Leeds School of Business,University of Colorado at Boulder, Boulder, CO 80301, U.S.A.E-mail: [email protected]

Copyright 2013 John Wiley & Sons, Ltd.

succeed in an emerging industry due to theirgreater resources, legitimacy, and experience,what drives entrepreneurial de novo entry into anemergent industry?

Management scholars have accumulated signifi-cant evidence that economic, political (Gentry andHubbard, 2000; Miller, 1983; Shane, 1996; Sobel,2008), and sociocultural factors influence entry(see Sine and David, 2010 for a review). While theorganizational ecology literature (Hannan and Car-roll, 1992; Hannan and Freeman, 1977) has longexamined how and why de novo and de alio firmsdiffer in their survival rates and timing of entry(see Carroll and Khessina, 2006 for a review), thisliterature has not offered “a conceptual frameworkfor theory about the macroenvironment, somethingthat current practice seems unlikely to generate.”(Carroll and Khessina, 2006: 179).

We develop and test such a framework byexamining how the economic, political, andsociocultural environment differentially influences

J. G. York and M. J. Lenox

entry by de novo versus de alio firms in the greenbuilding supply industry from 2000 to 2007. TheU.S. green building supply industry has emergedto support demand for green building, defined asthe practice of reducing negative environmentalimpacts in building construction (Eichholtz, Kok,and Quigley, 2010; Hoffman and Henn, 2008).The environmental benefits of green building areinherent to this industry, and there are heteroge-neous factors promoting environmentalism acrossdifferent states (Bansal and Roth, 2000; Hoffman,1999; Sine and Lee, 2009). Thus, this contextprovides a robust setting to understand better howthe institutional setting influences the entry ofde novo versus de alio firms. We find that whileeconomic and regulatory factors are predictiveof entry by de alio diversifying incumbent firms,sociocultural factors may exert higher influenceon de novo than de alio firms.

These findings contribute to several researchareas. First, we contribute to the literatureon de novo versus de alio entry. Rather thanexamining heterogeneity in firm behaviors andoutcomes (Carroll, 1985; Carroll et al., 1996;Chen, Williams, and Agarwal, 2011; Fan, 2010;Ganco and Agarwal, 2009), we offer one of thefew studies to examine the differential driversof entry. Further, ours is the first study, toour knowledge, that examines the influence ofthe sociocultural environment on entry by denovo versus de alio firms. Second, for the fieldof entrepreneurship, we expand knowledge ofhow the institutional environment can influenceentrepreneurial entry (Hiatt, Sine, and Tolbert,2009; Sine and Lee, 2009) by examining thebroader, less formalized effect of social norms(Elster, 1989). Our study offers empirical evidencethat the institutional environment, and particularlysociocultural factors, differentially influenceentrepreneurial ventures in fields with distinctsocial and environmental implications.

Third, aligned with extant research, our find-ings suggest that the sociocultural environmentis a powerful factor in encouraging the entry ofentrepreneurial firms seeking to create environ-mental benefits (Meek, Pacheco, and York, 2010;Russo, 2003; Sine and Lee, 2009; Wang andBansal, 2012). Understanding how the sociocul-tural environment impacts entry by de novo andde alio firms into environmentally beneficial indus-tries has important strategic implications for policymakers, entrepreneurs, and managers.

THEORETICAL BACKGROUND

Economists and management scholars have longexplored the influence of institutional factorson organizations and emergent industries (e.g.,DiMaggio, 1988; DiMaggio and Powell, 1983;Meyer and Rowan, 1977; North, 1990). These fac-tors can be broadly classified into economic, reg-ulatory, and sociocultural factors (Shane, 2004).Sociocultural factors can promote both normative(values and expectations) and cultural-cognitive(schema and awareness) legitimacy for an emer-gent industry (Scott, 1995: 77).

Scott (2010) points out that studies have largelyfocused on the regulative and economic dimen-sions of the institutional environment rather thanits normative aspects. Recent studies on the inter-section of institutions and entrepreneurship havebegun to remedy this oversight (Tolbert, David,and Sine, 2011) by examining the influence ofsocial movements on entry (Sine and Lee, 2009).These studies suggest that normative influences,dispersed through social movement organizations,exert strong pressure on entry (Pratt and Kraatz,2009). Less examined have been how the broader,less formalized sociocultural environment—suchas social norms (Elster, 1989)—affects entry.

A nascent stream of research examining renew-able energy entrepreneurship provides evidencethat the context of environmentally beneficialindustries could shed light on the link between thesociocultural environment and entry. For example,Russo (2003) finds that state-level trade associa-tions supporting the independent power productionindustry had a greater positive effect on entry forrenewable energy firms than coal and natural gasfirms. Similar effects have been noted in the wind(Sine and Lee, 2009) and solar energy (Meek et al.,2010) industries. However, these studies do notdifferentiate how different aspects of the socio-cultural environment (e.g., social movements vs.social norms) will differentially impact de novoversus de alio entrants.

The institutional environment andorganizational entry mode

A substantial literature in organization theory hasexamined how entry mode (de novo vs. de alio)affects firm outcomes (see Caroll and Hannan,2000) and the competitive dynamics betweentypes of entrants (see Markman and Phan, 2011).

Copyright 2013 John Wiley & Sons, Ltd. Strat. Mgmt. J. (2013)DOI: 10.1002/smj

Exploring Sociocultural Determinants

The overarching findings of this literature are(1) de alio firms enjoy an initial advantagebecause they enter with greater resources andcomplementary capabilities than de novo entrants(Klepper and Simons, 2000; Mitchell, 1991; Rao,1994) and (2) this advantage erodes over timein dynamic environments because de novo firmstend to be more fluid, adaptable, and innovative(Agarwal et al., 2004; Hannan and Freeman, 1984;Khessina and Carroll, 2008).

While these fundamental insights have heldacross a wide range of empirical studies (Carrollet al., 1996; Hannan et al., 1998; Mitchell, 1994),Carroll and Khessina (2006) point out that the liter-ature has largely focused on how de novo and dealio entrants interact and compete to drive entry(Carroll and Hannan, 1989; Hannan and Freeman,1977). The extant literature says little about eitherthe motivations of entrepreneurial entrants or theimpacts of macroinstitutional variables on entry.Thus there is “ . . . no applicable general theoryabout how entrepreneurs react to exogenous insti-tutional and governmental changes in the envi-ronment” (Carroll and Khessina, 2006:181). Firmidentity and legitimacy provide two mechanismsfor developing such a theory.

Identity

De novo firm identity is often highly alignedwith an emerging industry, whereas de aliofirm identity is primarily derived from activitiesoutside the focal market (McKendrick and Carroll,2001). For de novo firms, identity is tied to being“authentic” to the emerging industry (McKendricket al., 2003); the firm’s attention and resourcesare dedicated only to the emerging market. Forexample, in the brewing industry “craft” brewersmaintain a differentiated identity that is reliant onthe use of traditional, high-quality ingredients andsmall, localized production to distinguish themfrom mass producers (Carroll and Swaminathan,2000). Similar dynamics have been recorded inthe organic foods (Lee, 2009), grass-fed beef(Weber, Heinze, and DeSoucey, 2008), andrenewable energy (Sine and Lee, 2009) industries.We propose that firm identities tied to largersociocultural norms, such as environmental normsof avoiding pesticides, growth hormones, andpolluting forms of energy, can act as a legitimatingresource for de novo firms (Carroll and Khessina,2006). Because such de novo firm identities

are likely to be tied to long-term, noneconomicreturns (Wang and Bansal, 2012) such as solvingan environmental issue, they will often engage inactions that increase their normative legitimacy(Miller et al., 2012).

In contrast, de alio firms may not be as read-ily perceived as “authentic” when entering into anemerging industry. Just as a focused identity canlegitimate de novo firms, de alio firms may strug-gle to project multiple, and even competing, iden-tities across industries. De alio firms have legacyidentities, often related to economic profitability,which may undermine their efforts to diversify. Forexample, Carroll and Swaminathan (2000) foundthat the presence of specialty brewpubs acceleratednegative assessments of larger brewers, even whenthe large brewers produced similar “craft” beer.Some evidence suggests that de alio entry maynot even assist in legitimizing emerging industries(McKendrick et al., 2003).

Because authentic, market-focused identitiesmay be a critical factor for de novo firms’success in emerging industries, particularly whenthe industry has a clear social or environmentalimpact, we propose that de novo firms willbe more: (1) aware of the informal, normativeinstitutions impacting their focal industry and (2)influenced by such institutions.

Legitimacy

While de alio firms can rely on extant capabil-ities (Hannan and Freeman, 1984) to establishlegitimacy and access to valuable resources, suchoptions are often unavailable to de novo firms(Khessina and Carroll, 2008). Faced with a lackof legitimacy for both the emergent sector andthe new firm itself (Suchman, 1995), de novofirms may be motivated by different aspects of theinstitutional environment than de alio firms. Forexample, Weber and his colleagues (2008) foundthat grass-fed beef producers drew on relation-ships with both religious and environmental groupsto build legitimacy for their practices. Becausede novo firms are unable to rely on the legiti-macy of an economic track record, they may drawon the normative legitimacy offered by sociocul-tural institutions. For example, Sine and his col-leagues (Sine, Haveman, and Tolbert, 2005) foundthat media coverage of the emergent independentpower sector had a greater impact on renewableenergy entrants than traditional energy firms. These



findings suggest that de novo firms utilize theirfocused identity as a means to gain normativelegitimacy with potential employees, investors,and customers.

De alio firms are likely also impacted bythe sociocultural environment, particularly whenthey attempt to enter industries that are notaligned with their extant identity. When firmsenter into new markets, both external and internalstakeholders may question their legitimacy. Carrolland Khessina propose that identity “delineatesthe magnitude of the actions that a firm mayundertake without violating expectations of itsaudience” (2006: 191). De alio firms are embeddedwithin a web of existing customers, investors, andemployees that has been with them since beforediversification. It is likely that, unless they aretargeted for activism, de alio firms will focus ontheir current, internal stakeholders (Parmar et al.,2010) and will thus legitimize diversifying entrythrough the economic promise of the emergingindustry (Hannan and Freeman, 1984). There isconsistent, strong evidence that the economiclegitimacy of de alio firms creates a greaterlikelihood of success. However, past success andproven abilities often lead to fixed routines andassessments (March and Simon, 1958). For de aliofirms, economic and regulatory arguments maypush entry into an emergent sector.

Based on the above review of the literature, wepropose that de novo versus de alio entry will bedifferentially impacted by the institutional envi-ronment because of firm identity and forms oflegitimacy sought. We next hypothesize how theeconomic, regulatory, and sociocultural environ-ment will differentially impact entry by de novoversus de alio firms.

HYPOTHESES

Economic environment and entry

While it is intuitively clear how the economicenvironment impacts the overall rate of entry(Gentry and Hubbard, 2000; Shane, 2004), itsimpact on de novo versus de alio entry is littleunderstood and has often been treated as a controlvariable (Carroll and Khessina, 2006).

For de novo firms, the economic munificenceof an emerging industry is a critical consideration.As new entrants lack the financial resources, capa-bilities, and capital availability of de alio firms

(Carroll et al., 1996), they will need to achievea positive cash flow quickly. Further, de novoentrants may not possess the network or legiti-macy within the industry that de alio firms haveestablished (Bruderl and Schussler, 1990; Free-man, Carroll, and Hannan, 1983; Stinchcombe,1965). For de alio firms, positive economic condi-tions represent opportunity for diversification andreduce the uncertainty of entering new markets.Thus, positive economic conditions mitigate therisk faced by both type of entrants. However, froman identity and legitimacy perspective, we wouldexpect to see differential impacts of the economicenvironment particularly in the context of sociallyor environmentally relevant industries.

Economic considerations are vital even forentrepreneurs dedicated to an explicit social mis-sion (Dacin, Dacin, and Tracey, 2011). Environ-mental entrepreneurs whose products and servicesaddress environmentally relevant market failure(Dean and McMullen, 2007; Lenox and York,2012) are still beholden to the need to gen-erate economic rents. However, because suchentrepreneurs’ identity is linked to environmen-tal beliefs and normative assessments, as wellas the possibility for economic profits (York andVenkataraman, 2010), they may be willing totake on greater levels of economic risk. Indi-viduals seeking to establish environmentally rel-evant businesses will likely be embedded withinsocial networks that normatively value such behav-ior (Fauchart and Gruber, 2011). Therefore, theywill foster a focused firm identity that is tightlylinked to their product market. Because of foundermotivations, and their strong focal firm iden-tity, de novo entrants may seek to demonstratenormative legitimacy (Carroll and Swaminathan,2000; Rao, 1994; Swaminathan, 1995) and thus“defy (or at least suggest arguments alternativeto) rational action interpretations” (Carroll andKhessina, 2006: 193). For example, a green build-ing entrepreneur described his firm to us as:

. . . we are a green company. We’re not acompany that’s trying to go green. A lotof companies have a lot of baggage, youknow, “We’re trying to move to green.” No,our company is already green. We createda green company . . . we cover the carbonfootprint required to produce [our products]in only 62 days after they’re installed . . . . Weuse all recycled materials. We use recycled



paper. So we have a philosophy of beinggreen, not just going green, which I thinkis very important . . . if you’re going to talkthe talk, you’ve got to walk the walk.

While de alio firms likely have internal interestand even champions for diversification, we pro-pose that they are more likely influenced by eco-nomic conditions within an industry than de novoentrants. First, de alio firms’ current resourcesmay not allow them to compete effectively inthe nascent market (Helfat and Lieberman, 2002)and must be adjusted at considerable opportunitycost. Second, because de alio firms have ongoingoperations they also have superior knowledge andawareness of economic conditions (Carroll et al.,1996) within the broader industry than that pos-sessed by de novo firms at the time of entry (Carolland Hannan, 2000; Khessina and Carroll, 2008).Finally, de alio firms’ legitimacy is tied to an iden-tity that is linked to economic profits. Becausede alio firms are beholden to extant economicstakeholders, diversification into emergent indus-tries, particularly those based on environmental orsocietal benefits, will need to be justified on aneconomic basis (Margolis and Walsh, 2001). Thus,

Hypothesis 1: Economic conditions in an emerg-ing industry will have a greater positive asso-ciation with entry by de alio (diversifyingincumbent) firms than with entry by de novo(entrepreneurial) firms .

Regulatory environment and entry

The regulatory environment can influence entrythrough two types of policies. First, the statemay issue regulatory policies that mandate orforbid the use of specific products. For example,renewable energy portfolio standards, or mandatesfor utilities to adopt renewable energy, havecreated opportunity for wind and solar energyentrepreneurs (Meek et al., 2010; Sine and Lee,2009) and fostered entry by incumbent firms.

Regulatory policies mandating the adoption ofan industry’s products create regulative legitimacy(Scott, 1995) for the industry. For example,government policies requiring the adoption ofmore environmentally friendly practices, suchas environmental certification (King, Lenox, andTerlaak, 2005) or establishing property rights for

environmental externalities (Pacheco, Dean, andPayne, 2010), would be expected to increaseentry by de novo firms because they legitimizethe emerging industry (Scott, 1995). For de aliofirms, such policies show that adoption may berequired in order to avoid further regulation of thefirm’s central industry (Lenox, 2006) and to haltthe loss of market share in emerging industries.We therefore expect that such regulatory policieswould have a similar effect on both de novo andde alio entry.

As an alternative to regulatory mandates, thestate can influence entry through providing eco-nomic incentive policies , such as tax breaks, foradoption of products and services (Holtz-Eakin,2000). A well-known example of economic incen-tives driving entry is the recurring expirationand reinstatement of the U.S. renewable energytax credit, which has been explicitly linked toentry into solar and wind production (Pernick andWilder, 2007) by incumbent utilities. Such incen-tives can have a strong effect on the developmentof emergent industries and encourage entry by allfirms (Sine et al., 2005). However, the perspec-tives of identity and legitimacy can differentiatethe effect of such incentives on de novo versus dealio entry.

De novo firms in emerging industries are likelyembedded in, and aware of, the shifting socialmovements and norms that have fostered incentivepolicies (Pratt and Kraatz, 2009); therefore eco-nomic incentives for the industry’s products, whilehelpful, will likely have a limited influence on denovo entrants. Incentives may be helpful for denovo firms motivated by a strong identity focusedin the emerging industry, but for de alio firmsincentives signal (1) a potential shift in their focalmarket, (2) the need to adopt a proactive stanceand diversify their products to avoid more stringentregulation and stakeholder activism (Eesley andLenox, 2006; Kivleniece and Quelin, 2012), and(3) an economic opportunity for diversification.The context of environmentally beneficial indus-tries, and green building in particular, illustratesthis effect.

Although the common solution to environmentalproblems is one of government regulation, govern-ment may alternatively encourage firms to adoptvoluntary self-regulation. For example, rather thandeveloping a governmental certification for greenbuilding, states have endorsed adoption of theLeadership in Energy and Environmental Design



(LEED) green building certification by provid-ing economic incentives (Yudelson, 2007). Thesepolices strongly signaled the need for de alio firmsto market products that will assist in achievingLEED certification, whereas de novo green build-ing suppliers had already focused on such prod-ucts. In addition, these economic incentives likelybolster the market for green building by encourag-ing economically focused construction customersto adopt. Such clients may not be attracted by thenormative identity of de novo entrants, but read-ily adopt de alio offerings. One green buildingentrepreneur described the effect of incentive poli-cies as follows:

They matter. They definitely matter. Arethey the driver? They’re not the sustainer,I can tell you that . . . I think back to the80s when we had the solar rebates. And itcreated . . . an industry that shriveled up anddied overnight. And I wouldn’t want to seethat happen again. And it’s because it didn’thave [the societal support] I spoke aboutearlier. It didn’t have the buy-in, the politicaland private willpower . . . It’s just, “OK, ifthe numbers work, we’ll do it.”

In summary, we propose that while regulatorymandates will similarly impact both new entrantsand diversifying incumbents, de alio firms will bemore highly encouraged by economic incentivesthan de novo firms (King, Prado, and Rivera,2012; Lenox, 2006). For de alio firms, incentiveseconomically legitimate the emerging segment andbuild the market, allowing greater justification ofentry with extant stakeholders. Thus,

Hypothesis 2: Economic incentive policies foran emerging industry’s products will have agreater positive association with entry by de alio(diversifying incumbent) firms than with entry byde novo (entrepreneurial) firms .

Sociocultural environment and entry

In contrast to the centralized, government-enforced institutions represented by the regulatoryenvironment, the social-cultural environmentconsists of decentralized institutions (Ingram andSilverman, 2002) enforced through normativelegitimacy (Scott, 1995, 2008). For this study, we

define the sociocultural environment as the beliefsand attitudes that actors in a region hold towardthe moral correctness of specific activities, alignedwith Scott’s normative pillar of legitimacy (1995,2010). These beliefs influence entry rates throughaffecting perceptions of the desirability of enteringa new market and the potential success of entry(McMullen and Shepherd, 2006). Empirically,scholars have examined the role of social move-ments (Hiatt et al., 2009; Lounsbury, Ventresca,and Hirsch, 2003; Sine and Lee, 2009) and socialnorms (Meek et al., 2010) in moderating foundingrates. However, the differentiated effect of thesociocultural environment on de novo versusde alio entry has received little theoretical orempirical attention.

There is significant evidence to suggest thatcollective action, particularly by social move-ments, can have a strong influence on de novoentrepreneurial entry. Social movements are“organized collective endeavors to solve socialproblems” (Rao, Morrill, and Zald, 2000: 244).They are the collective action movements of indi-viduals and organizations with shared identitiesor goals (Blumer, 1969) toward social change(McCarthy and Zald, 1977a). Social movementsare often enacted through social movementorganizations (SMOs) which are “complex, orformal, organizations which identify their goalswith the preferences of a social movement or acountermovement and attempt to implement thosegoals” (McCarthy and Zald, 1973: 1218) throughcollective action (McCarthy and Zald, 1973; Zaldand McCarthy, 1986).

While collective action will clearly influencethose de alio firms specifically targeted foractivism (Eesley and Lenox, 2006), we proposethat the overall influence of collective actionwill be less on de alio firms than on de novofirms. First, because de alio firms are tied toexisting customers’ needs (Christensen, 2003)they may experience inertia against innovatingnew products or services that are espoused by“fringe” collective action organizations (Hoffman,1999). Second, diversifying incumbents haveestablished routines (Carroll et al., 1996) and maybe subject to competency traps (Levitt and March,1988) that will cause them to disregard feedbackfrom collective action organizations as not beingrelevant (McCarthy and Zald, 1977b). Third, denovo entrants often undertake collective action topromote the legitimacy of an emerging industry



themselves, attempting to educate and persuadestakeholders that they offer a normatively supe-rior product (Carroll and Swaminathan, 2000;McKendrick et al., 2003; Swaminathan and Wade,2001). Thus, they are also more likely to sharenetworks with, and be supported by, collectiveaction organizations. In summary, because denovo firms are more likely to rely on normativelegitimacy and because their identity is focused onthe emerging, relevant sector, they are more likelythan de alio firms to be influenced by collectiveaction supporting the industry.

Hypothesis 3: Collective action supportingan emerging industry will have a greaterpositive association with entry by de novo(entrepreneurial) firms than with entry by dealio (diversifying incumbent) firms .

While the role of SMOs received some atten-tion in the entrepreneurship literature, the impactof social norms—defined as the unwritten rulesof conduct of a group (Elster, 1989)—hasbeen less examined. Social norms may influenceentrepreneurial entry through two mechanisms: (1)perception of entrepreneurship as socially desir-able and (2) perception of specific entrepreneurialopportunities as socially desirable.

Most entrepreneurship research on social normshas looked at the degree to which entrepreneurshipis viewed as an esteemed and socially beneficialactivity in a region. For example, if entrepreneursare viewed as “exploitative” in a community, thestatus of entrepreneurship as a career is lowered,and thus made undesirable as a career choice(Manolova, Eunni, and Gyoshev, 2008). On theother hand, several studies have found that whenentrepreneurs are viewed positively in a region,individuals are more likely to seek entrepreneur-ship as a viable career path (Freytag and Thurik,2007; Tominc and Rebernik, 2007). However,Krueger and his colleagues’ (2000) study ofintention-based models of entrepreneurship foundno evidence of a relationship between socialnorms and entrepreneurial intentions. Thus, theeffect of social norms on entrepreneurial entry isambiguous.

We propose that to understand the role of socialnorms in entrepreneurial entry, we must betterunderstand their effect on the perception of specificopportunities as socially desirable. To do so, it is

necessary to examine entry within industries thathave distinct, empirically tractable, socioculturalimplications. Prior work has established thatenvironmental social norms differ across regions(Mazur and Welch, 1999; Mazur, 2010) and areinfluential in individuals’ views of the naturalenvironment (Lubell, 2002); we argue socialnorms are likely to influence the motivation,and therefore the likelihood, of entrepreneurshipin environmentally beneficial industries. In theone study we could locate examining the roleof environmental social norms on entrepreneurialentry, Meek et al. (2010) found that social normsof environmentalism were highly correlated withentry in the solar energy industry. However, thiswork gives no comparison to entry by diversifyingincumbents. Further, we could find no studies inthe literature on de novo and de alio entrants thatexamined the role of social norms.

We propose that social norms act as a “pull”that influences potential entrepreneurs to believenot only that they could enter a new field, butthat they should enter a new field because itis normatively legitimate and, thus, more likelyto succeed. For de novo firms, who focus theiridentity on the emergent sector, social norms willlikely influence entry by (1) enabling recognitionof opportunity through changing societal norms,(2) building a social network of similar-mindedactors, and (3) providing normative legitimacyfor the new venture in their region. Prevalentsocial norms supporting an emerging industry ina region will likely influence the propensity ofpotential entrepreneurs to perceive opportunityrelated to those norms. Recent work has shownthat how entrepreneurs view their membershipin groups (e.g., environmentalists) drives thetypes of opportunities pursued, as well as theaudiences they engage (Fauchart and Gruber,2011). Normative legitimacy provided by socialnorms can act to assure potential entrepreneurs thatthey are making the “right” choice by foundingtheir new venture, despite a lack of clear evidenceof economic opportunity or regulatory support.

While the pull of the social norms and collectiveaction is likely to influence de novo entrants whohave higher flexibility (Carroll et al., 1996) and canmore easily adapt (Hannan and Freeman, 1984)to changing sociocultural conditions, we proposethat de alio firms will be more influenced by thepush of economic opportunity and/or formalizedincentive policies as outlined in H1 and H2.



Prior work has suggested social norms can impactexisting firms (Philippe and Durand, 2011),however, studies in the area of organizationsand the natural environment suggest norms arenot a driver of firm adoption of environmentallybeneficial practices. Rather, adoption has beenshown to be often a defensive posture in anticipa-tion of regulatory pressure (Delmas, 2002; Kinget al., 2005) or to be dependent on endogenouscharacteristics such as internal awareness (Delmasand Toffel, 2008). Thus, the subtle influence ofsocial norms on entry by de alio firms is likelyless than on de novo firms because: (1) socialnorms represent a normative, not economic orregulative, assessment and (2) key decision mak-ers within a firm are likely engaged in a myriad offirm-relevant decisions that are not related to thesociocultural environment and are thus embeddedwithin an economic logic (Gladwin, Kennelly,and Krause, 1995).

Hypothesis 4: Social norms supporting anemerging industry will have a greater pos-itive association with entry by de novo(entrepreneurial) firms than with entry by dealio (diversifying incumbent) firms .

DATA AND METHODS

To test our hypotheses, we examined entry intothe green building supply industry. We chose thisindustry for several reasons.1 First, we sought toidentify an industry in which new entrants couldbe considered to address an environmental issuewhile simultaneously creating an economicallyviable business (Lenox and York, 2012). As greenbuilding is defined as a process of “design andconstruction practices that significantly reduceor eliminate the negative impact of buildingson the environment and occupants” (USGBC,2004), for-profit entrants in this industry meetthis criteria. Second, in view of the amorphous

1 To ground our understanding of the green building supplyindustry, the first author engaged in the following field work:(1) volunteered at the 2008 USGBC Greenbuild Conference andconducted informal interviews with merchants, builders, andconsultants as well as USGBC employees, (2) attended twoLEED charrettes, intensive 1-day kickoff meetings for LEEDprojects, and (3) attended training and successfully receivedthe LEED Green Associate certification, a first step towardbecoming a LEED Accredited Practitioner. This fieldworkinformed our data collection strategy and theory.

nature of social and environmental entrepreneur-ship, researchers have struggled to constructany reliable records of entrepreneurial entry; thegreen building supply industry does have reliableand reasonably detailed data along this line, asdescribed in the next section. Third, because wewere specifically interested in the impact of thesociocultural environment, it was necessary toidentify an issue that is clearly defined, consideredimportant by specific collective action organi-zations, and is representative of a larger socialnorm, (e.g., environmentalism). Finally, greenbuilding is an emergent, specialized sector withinthe construction industry that provides opportunityfor both de novo and de alio firms.

A key factor in the emergence of the greenbuilding supply sector was the establishment in1993 of the US Green Building Council (USGBC),a nonprofit organization. Prior to the establish-ment of the USGBC, the defining characteristicsand technology of green building were unclear,and information asymmetries between builders andcustomers were prevalent. This changed with therelease of the USGBC’s Leadership in Energy andEnvironmental Design (LEED) voluntary ratingsystem in 2000; through achieving LEED certifi-cation, building owners could authenticate a build-ing’s environmental profile.

The USGBC has emerged as one of the mostinfluential and successful SMOs in U.S. history,attracting members from a diverse array offields and countries. As LEED adoption hasgrown, so has the supply base of firms thatprovide products and services to support LEEDadoption. The ability of general contractors toengage in green building is predicated on aportfolio of green building supply firms beingavailable as subcontractors and suppliers. Forexample, spray-based organic foam installationrequires not only installation materials but alsotrained technicians and equipment specific to thisinstallation. The emergence of LEED certificationand green building has created an opportunity forentrepreneurs and for existing firms to offer new,environmentally superior products and services.

Sample

We constructed a unique longitudinal dataset thatprovides a view of entry in the green buildingsupply sector at the state level. Our window ofobservation begins in 2000 (the first year LEED



certification was made available to the public)and runs through 2007 (the last full year forwhich these data were available). The resultingdataset consists of 400 state-year observationsacross 50 states and 8 years in models 1–2.Because we were interested in measuring theeffects of institutional changes on entry over timeand in addressing potential reverse causality, welagged independent variables in our models by2 years (Angrist and Pischke, 2009). Thereforewe lose 2 years of observations and the finalsample consists of 300 state-year observations.Given constraints in the availability of data for ourmeasure of environmental social norms (describedbelow), we test our hypotheses on a sample of45 U.S. states when utilizing these data, thusleading to a sample of 270 state-year observationsin models 3–7. These analyses exclude the statesof Nebraska, New Hampshire, Nevada, RhodeIsland, and Utah because these states were notincluded in the General Social Survey (GSS) datafrom which we measure state-level social norms.Comparisons of entry in these states suggeststhat there are no statistical differences betweenthe population-adjusted mean firm entry in greenbuilding supply in these states as compared tothe rest of the sample (t = 0.10; p = 0.92). Wespecify models predicting two different dependentvariables: (1) entry by de novo environmentalentrepreneurs and (2) entry by de alio diversifyingincumbent firms.

Variables

De novo and de alio entrants

For our dependent variables, de novo and de alioentry, we utilized the GreenSpec directory of greenbuilding products and suppliers created by Build-ingGreen an independent publishing companyfocused on promoting green building practices(Building Green, 2007). The GreenSpec directoryhas been published annually every year since 1999(with the exception of 2004) and identifies prod-ucts screened on a criteria including conservingnatural resources, saving energy or water, or avoid-ing toxic emissions. For each product, the directoryidentifies the firm providing the product, as well asthe address of the firm. Following prior studies thathave utilized directories as a proxy for entry (e.g.,Baum and Singh, 1994; Caroll and Hannan, 2000;Chen et al., 2011), we construct measures of entry

by counting the number of new companies listedin the directory for each state-year in our panel.

To identify which firms were entrepreneurialentrants (De Novo Entrants), we first engaged ina manual search to identify founding dates ofeach firm listed in the GreenSpec directory. Wewere able to locate founding dates for 1,065 ofthe 2,604 of the unique U.S. firms listed in thedirectory (41%). To test for systematic differencesbetween those firms for which we located foundingdates, and those we did not, we utilized a t-test comparing the number of employees for eachgroup (t = 0.20; p = 0.83). Following prior workin entrepreneurship (Evans, 1987; Fritsch andMueller, 2004; McDougall, Oviatt, and Shrader,2003; Reynolds, 1987; Reynolds and Curtin, 2009,2010), which has designated new firms to bethose 6–8 years old, we then parsed the data intoincumbent firms founded before the year 1994(6 years prior to the first GreenSpec listing in2000) versus new entrants founded after 1994.The year 1994 is also significant as the year theUSGBC was founded, representing a shift whengreen building became more nationally knownas an emerging sector. Our fieldwork vetted thisassumption, as many of the firms we met withhad indeed been founded explicitly to offer greenbuilding products. Diversifying incumbents, “firmsthat already existed before entering the focalindustry” (Ganco and Agarwal, 2009: 229) had amuch longer heritage, as the construction supplyindustry is not particularly turbulent, barriers toentry are quite low, and firms often diversifyinto emergent technologies. While these firms didnot necessarily create “new” products, we taketheir listing in GreenSpec as entry into the greenbuilding sector.

Of our sample, 351 firms were new entrants and714 were diversifying incumbents; this ratio issimilar to that reported for entry by de novo and dealio firms in other emerging industries (Khessinaand Carroll, 2008). To create each variable, the DeNovo Entrants measure was coded as the numberof new firms (founded 1994 or later) listed in thedirectory for each state-year in our panel, and DeAlio Entrants was coded as the number of firmsfounded prior to 1994 listed for each state-year.Each variable was de-duplicated to show onlythe first listing of each firm; thus we measureentry, not a cumulative count. Figure 1 shows theconcentration (left axis) and entry (right axis) ofentrepreneurial and diversifying entrants over the



Figure 1. Annual number of firms operating and new entrants by entry mode

period of our sample across all states. Table 1provides an overview of the average size, foundingyear, and subsectors occupied by the two samples.

Table 1. Size, founding year, and product offerings byentry mode

De novoentrants

De alioentrants

Average number of employees 445 1737Founding

• Average founding year 2000 1968• Range of founding years 1995–2007 1805–1993

Percentage in top productcategories• Finishes (%) 20.2 16.5• Thermal and moistureprotection (%)

13.24 13.6

• Wood and plastics (%) 11.4 10.3• Sitework (%) 7.4 11.0• Mechanical (%) 6.6 10.5

Economic environment

We measure the economic conditions surroundingthe emergent green building supply industry withtwo variables specific to the construction and greenbuilding sectors. First, we included a measureof the overall rate of construction in a state byincluding the number of new commercial buildingpermits issued (Commercial Construction) in thatregion. These data were provided by Reed Con-struction Data and are available from their web-site at www.reedconstructiondata.com. Second, wemeasured economic opportunity specifically ingreen building by the count of LEED-certifiedprojects in a state during a given year (LEED Cer-tified Buildings). The US Green Building Councilprovided these data directly to the authors.

Regulatory environment

Many states have adopted policies to encouragegreen building. While the majority of state-level



policies are requirements that state funded or occu-pied buildings must pursue LEED certification(66%), some states offered economic incentivesfor green building. For example, Louisiana pro-vides financial support to schools seeking LEEDcertification; Nevada provides reduced propertytaxes for LEED-certified buildings; and Oregonprovides a “Sustainable Building Tax Credit” forbuildings achieving Silver, Gold, or PlatinumLEED (Yudelson Associates, 2007). None of thesepolicies were targeted at encouraging entry intothe green building supply market, but rather atincreasing adoption of green building.

To measure the regulatory environment, wegathered data on 38 state-level policies that sup-ported green building from the Database of StateIncentives for Renewable Energy and Efficiency(DSIRE) and from an online database of incen-tives provided by the USGBC. We then codedeach policy into one of two categories: (1) pro-viding regulatory requirements for LEED certifi-cation (State Regulatory Policies) or (2) providingeconomic incentives for LEED certification (StateIncentive Policies). Our final variables consistedof the cumulative count of policies in place, bytype, in a state-year observation.

Collective action

We operationalize the presence of collective actionsupporting the green building supply industrythrough measuring the state-level presence of theUSGBC. USGBC Membership is the number ofUSGBC members in a given state-year. Thesedata were provided by the USGBC and coded as acount variable. To be clear, USGBC membershipis not necessary for LEED certification. Whilesome USGBC members have projects that receiveLEED certification, the majority of this samplewas composed of other groups such as contrac-tors and builders (34.2%), consultants (13.4%),architects (7.7%), engineers (9.6%), nonprofits(5.2%), local governments (3.1%), and a myriadof other organization types including accountants,attorneys, landscape architects, trade associations,and utilities interested in advancing green buildingand sustainable communities.

Social norms

We utilized a direct measure of the social norm ofenvironmentalism (Environmental Social Norms)

taken from the Sensitive Data Files of the GeneralSocial Survey (GSS) conducted by the NationalOpinion Research Council (NORC).2 The GSS isa multistage, stratified sample of American societywith a data-collection program designed to monitorsocial change within the United States (Davis,Smith, and Mardsen, 2001). It is a widely usedsocial science data source that has been utilized byresearchers in sociology, economics, and politicalscience. Some of the social norms examinedin prior research include family interdependenceand satisfaction (Buchmann and DiPrete, 2006;Kiecolt, 2003), trust and cooperation (Gachter,Herrmann, and Thoni, 2004), cultural conformity(Gibson, 1992; Van der Slik and Driessen, 2005),and environmentalism (Lubell, 2002). For anoverview of the GSS survey method and sampleplease see Davis et al. (2001). We utilized datafrom the GSS conducted in the years 2000, 2002,2004 and 2006. The survey consists of a seriesof questions that measure individuals’ opinionson a variety of topics, including environmentalissues. Following prior research in the geographyof environmental social norms in the United States(Mazur and Welch, 1999; Meek et al., 2010), weused the following question from the GSS:

We are faced with many problems in thiscountry, none of which can be solved easilyor inexpensively. I’m going to name some ofthese problems and for each one I’d like youto tell me whether you think we’re spendingtoo much money on it, too little money, orabout the right amount.

One of the “problems” described is “Improv-ing and protecting the environment”; we codedresponses of “spending too little” as environmen-talism and collapsed responses by the medianresponse for the state for each year. We then lin-early interpolated the score for missing years usingthe ipolate command in Stata.

Controls

We control for a number of factors that maydrive entry into green building supply. We first

2 The Sensitive Data Files were obtained under special contrac-tual arrangements designed to protect the anonymity of respon-dents. These data are not available from the authors. Personsinterested in obtaining GSS Sensitive Data Files should contactthe GSS at [email protected].



controlled for population effects by including ameasure of state population (Population). Wecontrolled for the changing overall economicenvironment in a state using the percent changein gross domestic product (Change in GDP ). Inaddition we controlled for state income levels(Median Income), as income levels have beenshown to impact entrepreneurial entry (Shane,2004). These data were acquired from the U.S.Census Bureau 2009 Abstract of the United States.

State electricity prices (Energy Price) canimpact adoption of practices that reduce consump-tion of power, and thus entry (Sine et al., 2005),therefore we controlled for states’ average retailprice with data obtained from U.S. Energy Infor-mation Agency. To control for differences in gen-eral entrepreneurial activity by state, we rely on ameasure of the overall level of entrepreneurship ina state (Entrepreneurial Growth). Entrepreneurialgrowth was measured utilizing the Kaufman Indexof Entrepreneurial Activity (KIEA) (Fairlie, 2008).The KIEA measures the percent of individuals(ages 20–64) who do not own a business inthe first survey month and then start a businessin the following month with 15 or more hoursworked. We utilized the annual summary report onstate levels of entrepreneurial growth as a proxyfor entrepreneurial activity in each state-year.These data are publicly available at http://www.kaufman.org/kaufmanindex.

To control for potential variables that couldinfluence the sociocultural environment to supportgreen building, we include (1) a measure of SierraClub Membership, as it is one of the oldest andmost widely recognized environmental SMOs inthe United States and (2) a control for the ideologyof a state’s political leaders (Political Ideology)that measures the average location of elected offi-cials on a liberal–conservative continuum (Berryet al., 1998, 2007). This measure was constructedusing the voting of state congressional delegations,the outcome of congressional elections, and thedivision of state legislatures and the party of thegovernor (Berry et al., 2007; Lee, 2009). Lastly,we controlled for the effect of de alio entry onde novo and vice versa to ensure we capturedentrants’ effects on one another (Prior Entry).

In our final models we controlled for theorganizational density of the green building sector(Field Density), measured as the log of the totalnumber of green building companies known to

exist in a state for the previous year. Variableswere scaled as noted to ease interpretation.

Specification

Because our dependent variables are count dataand residuals from test models violated assump-tions of normality required for the ordinary leastsquares (OLS) specification (Cameron and Trivedi,1998) and exhibited overdispersion (Hilbe, 2007),we utilize a random effects negative binomialmodel. We used the random effects model becauseit takes into account the clustering of observa-tions (in this case, by state) by ensuring thatdispersion varies randomly from cluster to clus-ter (Rao, 2004). We did not adopt a fixed effectsmodel because of concerns about its robustness ina negative binomial setting. Allison and Waterman(2002) have shown that the fixed effects negativebinomial model is not a true fixed effects model,as it does not control for all stable covariates. Wetherefore follow Hilbe’s (2007) recommendationto utilize a different model, in this case, a randomeffects negative binomial model. In addition, theHausman test (Greene, 2003) was not statisticallysignificant (p = 0.83), indicating that the randomeffects specification was appropriate. We included,but did not report the results for, a full set of yeardummy variables to account for the unobservedeffect of time on our dependent variables.

ANALYSIS AND RESULTS

The descriptive statistics and correlations of allof our variables, except year dummies, are listedin Table 1. As could be expected, several of ourcontrol variables exhibit very high correlations,including Population with Sierra Club Member-ship (0.83) as well as Commercial Construction(0.84). Following prior studies that have facedsuch issues in panel data (Russo, 2003; Sine andLee, 2009), we reran our analysis, substitutingpopulation density (total population/state landmass) as this variable is relatively uncorrelatedwith our other variables. These analyses wereconsistent with the findings reported below,suggesting our findings were not the resultof multicollinearity. We also tested for multi-collinearity and found an average VIF of 3.04indicating an acceptable level (Chatterjee andHadi, 2006; Paetzold, 1992). We therefore utilized



our original measure of population to ensure thatwe directly controlled for state size effects.

Table 3 shows the estimates from our negativebinomial estimates. As a baseline test, model 1uses de novo entry by environmental entrepreneursas its dependent variable and includes our controlvariables. In model 2 we utilize the same controlvariables but use entry by de alio firms for ourdependent variable. We find a significant positiverelationship for entry by both de novo and dealio firms and Population (p < 0.001) and MedianIncome (p < 0.001). We find a significant negativerelationship between Change in GDP (p < 0.10for de novo and p < 0.001 for de alio) andEnergy Price and both entry modes (p < 0.05).We also find a significant negative relationshipbetween Sierra Club Membership (p < 0.001) andEntrepreneurial Growth (p < 0.10) with de alioentry. We find a significant positive relationshipbetween Political Ideology (p < 0.05) and de novoentry. Last, we find entry by each mode ispositively (Table 3) associated (p < 0.10).

Our next set of models tests our hypothesesby looking at the differential effects of institu-tional factors on entry by de novo environmentalentrepreneurs (model 3) and de alio diversify-ing incumbents (model 4). For model 3 we findthat neither Commercial Construction nor LEEDBuildings is significantly related to entry by denovo firms. However, in model 4 we find a sig-nificant positive relationship between Commer-cial Construction (p < 0.01) and LEED Buildings(p < 0.10) with entry by diversifying de alio firms.It appears that for every 1000 commercial build-ing starts in a state, the incident rate of entry byde alio firms is 2.9 times greater. For every addi-tional certified LEED certified building in a state,the incident rate of entry by de alio firms is 1.1times greater. However, the difference between thecoefficients for de novo and de alio firms for Com-mercial Buildings was not significant (p < 0.28),nor was the difference in LEED Buildings coef-ficients (p < 0.21). These findings provide partialsupport for H1, which stated that regional eco-nomic conditions in an emerging industry wouldexert greater influence over entry by de alio thande novo firms.

Turning to the effect of the regulatory environ-ment on entry, in model 3 we find that State Reg-ulatory Policies were not a significant predictorof entry by de novo or de alio firms. State Incen-tive Policies were not a significant predictor of de

novo entry , but they were significantly (p < 0.01)and positively associated with de alio entry. Forevery incentive-based policy implemented at thestate level, the incident rate of de alio entry is 1.5times greater. However, the difference in coeffi-cients was marginally significant in this compari-son (p < 0.10). This finding partially supports H2,which predicted that economic incentives providedby the state would exert greater influence overentry by de alio incumbents than de novo newentrants.

We next turn to our independent variablesmeasuring the sociocultural environment. In model3 we find that both USGBC Membership (p < 0.10)and Environmental Social Norms (p < 0.05) arepositively associated with de novo entry. Inmodel 4, we do not find evidence that USGBCMembership and Environmental Social Norms aredrivers of de alio entry. The differences in thepair of coefficients are statistically significantfor both USGBC Membership (p < 0.000) andEnvironmental Social Norms (p < 0.02). Thus, wefind support for H3, which stated that collectiveaction would have a greater positive associationwith entry by de novo than de alio entrants. For10 additional members of the USGBC in a state,the incident rate of de novo entry is increasedby a factor of 1.1. In addition, we find supportfor H4, which stated that social norms favoringenvironmentally friendly practices would exertgreater influence on de novo than de alio entry.For every increase of one unit in the medianenvironmental norms, the incident rate of de novoentry is doubled.

In model 5 and model 6, we replicate model 3and model 4 adding Field Density . As expected,this measure is a significant predictor (p < 0.001)of both de novo and de alio entry. We find nearlyidentical estimates with Environmental SocialNorms (p < 0.05), however USGBC Membership(p < 0.11) is no longer significantly related to denovo entry. Commercial Construction (p < 0.05)and State Incentive Policies (p < 0.10) continue tohave significant and positive correlations with dealio entry, however LEED Certified Buildings doesnot (p < 0.14). More critical for our analysis, thedifferences in coefficients for each of our indepen-dent variables of interest is significant and in theexpected direction. The difference for CommercialConstruction (p < 0.07), LEED Certified Buildings(p < 0.05), and State Incentive Policies (p < 0.02)are each statistically significant, providing support



Tabl

e2.

Sum

mar

yst

atis

tics

and

corr

elat

ions

Var

iabl

eM

ean

Std.

dev.

Min

Max

12

34

56

1D

eno

voen

tran

ts0.

881.

430

112

De

alio

entr

ants

1.78

3.33

034

0.41

3Po

pula

tion

5,82

6,16

0.00

6,40

9,22

2.00

493,

032

36,6

00,0

000.

510.

464

Cha

nge

inG

DP

0.05

0.02

−0.0

20.

14−0

.04

0.01

−0.0

35

Med

ian

inco

me

4492

7.64

7429

.98

2935

968

059

0.26

0.10

0.18

0.09

6E

nerg

yPr

ice

7.78

2.69

4.17

21.2

90.

05−0

.03

0.11

0.09

0.33

7E

ntre

pren

euri

algr

owth

29.5

59.

318.

166

72.3

730.

00−0

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−0.0

9−0

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−0.0

3−0

.08

8Si

erra

Clu

bM

embe

rshi

p14

593.

3527

232.

4343

519

8,59

00.

540.

400.

830.

310.

250.

229

Polit

ical

ideo

logy

46.4

426

.54

097

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11−0

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−0.0

1−0

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0.21

0.25

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eld

dens

ity6.

077.

830

740.

550.

510.

65−0

.05

0.17

0.06

11C

omm

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alco

nstr

uctio

n34

5.61

359.

518

2774

0.42

0.39

0.87

−0.2

40.

030.

0812

LE

ED

cert

ified

build

ings

2.22

3.59

034

0.36

0.09

0.60

−0.0

10.

260.

1413

Stat

ere

gula

tory

polic

ies

0.16

0.45

03

0.06

−0.0

40.

090.

070.

370.

2314

Stat

ein

cent

ive

polic

ies

0.09

0.36

02

0.14

0.08

0.25

−0.0

30.

03−0

.07

15U

SGB

Cm

embe

rshi

p27

.09

64.3

30

836

0.55

0.17

0.72

0.06

0.34

0.24

16E

nvir

onm

enta

lso

cial

norm

s2.

880.

530

5.5

0.11

0.09

0.14

0.00

0.26

0.15

Var

iabl

e7

89

1011

1213

1415

8Si

erra

Clu

bm

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rshi

p−0

.01

9Po

litic

alid

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gy−0

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0.16

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eld

dens

ity−0

.09

0.63

0.07

11C

omm

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alC

onst

ruct

ion

−0.1

10.

61−0

.12

0.53

12L

EE

Dce

rtifi

edbu

ildin

gs−0

.09

0.60

0.15

0.26

0.49

13St

ate

regu

lato

rypo

licie

s0.

080.

160.

21−0

.04

0.03

0.15

14St

ate

ince

ntiv

epo

licie

s−0

.03

0.14

0.04

0.21

0.11

0.13

−0.0

715

USG

BC

mem

bers

hip

−0.0

20.

720.

110.

350.

620.

700.

290.

2416

Env

iron

men

tal

soci

alno

rms

−0.0

40.

110.

110.

150.

120.

130.

070.

020.

12



Table 3. Negative binomial model estimates of entry into green building supply

Comparison 1Controls

Comparison 2Controls + independent

variablesComparison 3

With field densityRobustness

GLM

Dependent Variable

Model 1De NovoEntrants

Model 2De AlioEntrants





Model 7De Novo/De Alio

Entrants

ControlsPopulation 0.71*** 1.21*** 0.15 0.43 0.09 0.32 0.16

(0.20) (0.14) (0.65) (0.28) (0.30) (0.27) (0.64)

Change in GDP −5.64+ −10.48*** −3.98 −10.63** 1.25 −8.48* −2.07(3.41) (2.92) (3.49) (3.25) (3.53) (3.33) (0.02)

Median income 0.04*** 0.05*** 0.04* 0.06*** 0.01 0.05*** 0.02*(0.01) (0.01) (0.02) (0.01) (0.01) (0.01) (0.01)

Energy price −0.09* −0.07* −0.09+ −0.08* −0.09* −0.08* −0.04+(0.04) (0.03) (0.05) (0.03) (0.04) (0.03) (0.02)

Entrepreneurial growth 0.25 −1.46+ −0.17 −1.09 −1.04 −1.19 −0.69(0.89) (0.76) (1.07) (0.79) (0.84) (0.79) (0.44)

Sierra Club Membership −0.02 −1.02*** −0.03 −0.15 0.31 −0.08 0.21(0.39) (0.29) (0.67) (0.38) (0.43) (0.38) (0.52)

Political ideology 0.71* 0.22 0.66+ 0.24 0.40 0.27 0.06(0.31) (0.24) (0.38) (0.27) (0.29) (0.27) (0.15)

Prior entry 0.04+ 0.09* 0.05* 0.09+ 0.00 0.01(0.02) (0.05) (0.02) (0.05) (0.02) (0.05)

Field density 0.66*** 0.36***(0.12) (0.10)

Constant −1.92** −0.84 −3.74*** −1.78* −2.70* −1.30 NA(0.70) (0.54) (1.02) (0.78) (1.15) (0.80)

Year fixed effects Included Included Included Included

Independent VariablesCommercial Construction 0.35 1.08** −0.32 0.79* −0.19

(0.76) (0.38) (0.43) (0.38) (0.76)

LEED Certified Buildings 0.01 0.05+ −0.02 0.04 −0.06**(0.04) (0.03) (0.03) (0.03) (0.02)

State Regulatory Policies −0.13 −0.20 −0.03 −0.21 0.06(0.21) (0.21) (0.19) (0.21) (0.15)

State Incentive Policies 0.05 0.43** −0.24 0.27+ −0.11(0.37) (0.16) (0.23) (0.19) 0.34

USGBC Membership 0.11+ −0.11+ 0.09 −0.09 0.16*(0.06) (0.06) (0.06) (0.06) (0.08)

Environmental Social Norms 0.73** 0.07 0.67* −0.03 0.08**(0.22) (0.21) (0.33) (0.22) (0.03)

Observations 300 300 270 270 270 270 270AIC 733.67 815.62 676.38 752.82 645.76 736.16 NABIC 789.18 871.13 751.87 828.31 724.84 815.24 NAWald Chi2 106.97 161.39 119.55 164.75 152.18 183.42 130.00Difference in Log Likelihood NA NA 12.96* 16.05** 32.05*** 14.19*** NA

Population, commercial building, income, architects, tax rate, entrepreneurial growth, and Sierra Club scaled to ease interpretation.Standard errors in parentheses: +p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001.



for H1 & H2. In addition, the difference in coef-ficients for USGBC Membership (p < 0.000) andEnvironmental Social Norms (p < 0.01) remainsignificant, supporting H3 and H4.

In model 7, we perform an additional robustnesstest by fitting a generalized linear model (Papkeand Wooldridge, 1996) with our dependent vari-able as the ratio of de novo to all entrants. Wefind that USGBC Membership (p < 0.05) and Envi-ronmental Social Norms (p < 0.01) are again posi-tively associated with the ratio of de novo entrants.We find that LEED Buildings is negatively and sig-nificantly (p < 0.001) associated with ratio of denovo entrants. These results are consistent with thefindings of our main models. In additional robust-ness tests, we specified Poisson random and fixedeffects models. In addition, we reran our analysiswithout utilizing the interpolated entry or socialnorms data. Finally, we engaged in a series ofmodels with specifications of de novo firms rang-ing from 4 to 8 years of age at the beginning ofour sample (the year 2000), as well as an analy-sis that dropped all firms with founding dates of1992–1995, thus further dichotomizing our sam-ple between de novo and de alio entrants. All ofour findings were robust to these alternative speci-fications, except for a reduction in the significanceof the USGBC Membership variables main effect(p < 0.11) in models specifying de novo entrantsas 4 years old, and in our model with 2000 as thecutoff date for de novo foundings.

DISCUSSION

How do the unwritten rules of the game impactthe decisions of entrepreneurs and diversifyingincumbents to enter a nascent industry? Byexplicitly linking both collective action and socialnorms with an emerging sector that producesinherent ecological benefits, we are able to gain amore fine-grained understanding of the differentialimpact of the sociocultural environment on entryby de novo and de alio firms. In particular, ourfindings suggest that the sociocultural environmenthas a greater impact on the rate of de novoentrepreneurial entry than the rate of entry byde alio diversifying incumbents. This findingreinforces the notion that entrepreneurs in sociallyand environmentally impactful arenas, in this casethe green building supply segment, may be drivenby the pull of the sociocultural environment while

diversifying incumbents are pushed by regulationand economic opportunity. These findings haveimportant implications for our understanding ofcompetition and entry.

Our finding that the economic environmenthad less impact on entry by de novo firmsthan the sociocultural environment raises severalinteresting questions. It could be, as theorizedby prior literature (Cardon et al., 2009; Milleret al., 2012), that entrepreneurs who initiate socialand environmental ventures simply have greaterpassion and thus noneconomic motivations fortheir venture and ignore the economic signals oftheir environment. While our current data do notallow us to dig further into these differences, thisstudy supports the proposition that environmentaland social entrepreneurship may be a rich area offuture exploration for the role of affect and identityentrepreneurship (Dacin et al., 2011; Miller et al.,2012; Shepherd and Patzelt, 2011; York andVenkataraman, 2010).

Another result of interest was the correlationbetween state incentive policy and the entry ofde alio but not de novo firms. If state policymerely increases demand for green buildings, andhence the demand for green building supplies, whywould entrepreneurial entrants be less affected thandiversifying entrants? We propose that diversifica-tion decisions by incumbent firms are more highlydriven by an economic calculus that relies on thecertainty and legitimacy provided by state leveleconomic incentives.

Our finding, that USGBC membership is onlysignificantly and positively related to de novoentry, raises two interesting points. First, theresults are consistent with prior findings that denovo firms have a focused identity (Khessinaand Carroll, 2008) that is highly aligned withthe emerging industry. Our study suggests thisfocal identity may signify a commitment tothe normative ideology (and legitimacy) offeredby adjacent SMOs. Second, while prior studieshave shown that resource partitioning theory canprovide an explanation for SMO specialization(Soule and King, 2008) we could find no studiesthat looked at the impact of such specializationon firm entry. Recent studies have suggestedthat more specialized SMOs, who focus on aspecific industry, may have a greater impact onencouraging entrepreneurial entrants than that ofmore generalist SMOs, such as the Sierra Club(Pacheco, York, and Hargrave, Fortchoming; Pratt



and Kraatz, 2009). Thus, focused identity maycreate a synergistic impact between nascent SMOsand nascent firms.

Perhaps our most interesting finding is thestrong, persistent positive association betweenenvironmental social norms and entry by de novoenvironmental entrepreneurs. Our findings implythat social norms exert an influence above andbeyond that of social movements and a greaterinfluence on environmental entrepreneurs thaneconomic or political conditions in a region. Onecould reasonably argue that our findings may beconstrained to contexts that have distinct environ-mental or social implications. While this could be aboundary condition to our findings, it is likely thatin industries that do not have the clear support ofsocial norms or social movements, entrepreneurialfirms fill the gap by acting collectively to createnormative and cognitive legitimacy for the emer-gent sector (Scott, 2010). We suspect such activitywould be especially prevalent when firms enteron the periphery of an established industry, aspredicted by resource partitioning theory (Carroll,1985) and develop strong focal identities that allowcollective action to take form. Such relationshipshave been noted in the microbrewing (Carroll,1985), nouvelle cuisine (Rao, Monin, and Durand,2003), and automobile (Rao, 2004) industries.Future studies could examine the impact of socialnorms in moderating efforts by entrepreneurs toengage in such collective action, as well as exam-ine the impact of other social norms, such as con-formity, or valuing education, on entry. Sectorssuch as alternative health care, local foods, andmidwifery could offer potential areas for lookingat the effect of a variety of social norms.

This study has some limitations. First, becausewe focus exclusively on the green building sup-ply sector, the generalizability of our findingsmay be limited. Second, our sample is not acomprehensive view of the green building supplysector. Our field research indicated that collect-ing such a comprehensive dataset is simply notpossible for this emergent and diverse industry.However, given the history of utilizing directories(i.e., Baum and Singh, 1994; Caroll and Hannan,2000; Chen et al., 2011; Lu and Beamish, 2001)as a proxy for entrepreneurial entry, verificationthrough field interviews with industry participantsand the unique nature of our dataset, we are confi-dent that we have captured a representative sample.Third, our sample only covers 8 years (six with

lags) of entry into the green building sector. Itwould be interesting to see how the U.S. realestate collapse in 2008 affected the fates of thesefirms; did sociocultural legitimacy act as a resourcefor firms to survive challenging economic condi-tions? While our findings show provocative pat-terns regarding entry, we can say little about long-term performance (Ganco and Agarwal, 2009); nordo we capture the entire population of potentialde alio entrants. Do de novo firms reacting to thesociocultural environment increase their odds ofsurvival, or does ignoring the economic and polit-ical environment misguide them? Do de alio firmsignore evolving social norms at their peril? Whatfactors drove some de alio firms, but not others,to enter green building? We leave these questionsto future research.

For entrepreneurs, our study suggests that enter-ing a region that is culturally aligned with anew venture does not necessarily imply directcompetition from incumbents, whereas focusingon economic and regulatory opportunity may.Entrepreneurs may be able to circumvent directcompetition with incumbent firms by enteringareas before the opportunity is clarified throughpolicy by relying on an understanding of socialnorms in a region. While the industrial organiza-tion literature has traditionally found that de novofirms face challenges in establishing legitimacy(Stinchcombe, 1965) and retaliation by incum-bents (Fan, 2010), our findings suggest that bypaying attention to the social norms of a region,entrepreneurs may avoid incumbent rivalry. Fordiversifying firms, our study suggests that a greaterawareness of the sociocultural environment couldhelp to predict new entrants and allow incumbentsto maintain a competitive edge. Finally, for policymakers, our findings suggest that state-level poli-cies may not be the most effective mechanism toencourage entry by new firms; rather, fostering aregional culture aligned with an emergent industrymay spur greater levels of entrepreneurship.

CONCLUSION

This study adds to the extant literature on de novoversus de alio entry and provides new insightinto the nascent literature on social and envi-ronmental entrepreneurship. As we seek to dis-cover the impact of the sociocultural environmenton entry, socially and environmentally relevant



entrepreneurship provides us with a rich settingto tease out these elusive relationships. This studybroadens the extant literature by showing that it isimportant to examine not only the potential effectof entrepreneurship on society, but also the effectof social forces on entrepreneurial entry by bothnew and diversifying firms.

ACKNOWLEDGMENTS

We wish to thank Jeffrey Reuer and two anony-mous reviewers for their developmental and help-ful suggestions. We would like to acknowledgethe financial support of the Center for Educa-tion on Social Responsibility (CESR) at the LeedsSchool of Business, University of Colorado Boul-der and the Batten Institute at the Darden School ofBusiness, University of Virginia for this research.We would also like to acknowledge the help-ful comments of Michael Conger, Glenn Dowell,Beth Duckles, Martin Ganco, Rebecca Henn, AndyHoffman, Jojo Jacob, Thomas Keil, Olga Khessina,Nils Kok, Brandon Lee, Sharon Matusik, WesleySine, Tony Tong, Siddharth Vedula, and Stasi Yorkon earlier versions of this paper. In addition, webenefited from the comments and suggestions ofparticipants in the Alliance for Research in Cor-porate Sustainability (ARCS) Conference, Strate-gic Management Society Annual Meeting, and theNYU Stern Conference on Social Entrepreneur-ship. The first author would like to thank EricShade of Site Solutions for providing access toLEED projects and knowledge on green buildingand Nick Manuzak for his excellent research assis-tance. Finally, we wish to thank Angela Battistoat BuildingGreen as well as Sean McMahon andChris Pyke at the US Green Building Council forproviding access to data for this research.

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EXPLORING THE SOCIOCULTURAL DETERMINANTS OF DE NOVO VERSUS DE ALIO ENTRY IN EMERGING INDUSTRIES

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