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Decisions of firm risk and the role of organizational identity

  • Alexandra Graddy-ReedEmail author
Article
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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.

Keywords

Risk Organizational identity Firm structure For-profit Nonprofits Hybrids Social enterprises 

JEL codes

L22 L31 O31 O35 L26 

Notes

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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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Price School of Public PolicyUniversity of Southern CaliforniaLos AngelesUSA

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