LEGITIMACY AS INSTITUTIONAL POWER: AMBIVALENCE, DISCRETION, AND THE TOLERANCE OF OPPORTUNISM IN MODERN ORGANIZATIONS

Organizational legitimacy has traditionally been conceptualized as a beneficial resource enhancing firms’ survival, performance, and access to resources by aligning organizational behaviors with dominant social norms and institutional expectations. Although a large literature documents the positive effects of legitimacy, much less attention has been paid to its ambivalent effects, particularly the persistence of opportunistic behavior in organizations characterized by high levels of legitimacy. This research sheds light on the issue in question by treating the concept of institutional legitimacy as a cumulative process through which firms can access resources and expand their discretion margins. The study, based on institutional theory, suggests that gaining legitimacy over time helps a firm to get institutional backing, however, it might also increase the firm's chance to behave opportunistically. Therefore, legitimacy is seen as a method that can lead to both positive and negative consequences. Two hypotheses are formulated: higher cumulative institutional legitimacy increases firms' access to public resources, while also being associated with a higher likelihood of opportunistic behavior. The role of regulatory oversight is also analyzed, distinguishing between the probability of an outcome occurring and its conditional intensity. Empirically, this study uses a dataset of over 1,200 companies operating in Italy, drawn from the World Bank Enterprise Survey. Four composite indices are constructed: cumulative institutional legitimacy, access to public benefits, opportunistic behavior, and the level of regulatory oversight in the tax and workplace safety areas. To account for the zero-inflated nature of the dependent variables and distinguish between the emergence of outcomes and their intensity, the analysis adopts a two-stage model (Two-Part or Hurdle Model). The results provide support for the proposed theoretical framework. Cumulative legitimacy significantly increases both the likelihood of accessing public benefits and, to a lesser extent, their intensity. More critically, legitimacy exerts an even stronger effect on the likelihood of opportunistic behavior, while not explaining its intensity once such behavior occurs. Regulatory oversight partially moderates these relationships, in particular by influencing the emergence of opportunism, but does not cancel the positive association between legitimacy and the likelihood of opportunistic behavior. The findings question the generally positive understanding of organizational legitimacy and show that it is fundamentally a mixed concept. This changes the way we think about legitimacy affecting the spaces available for organizational action and also the dynamics of control in organizational fields.