Moderating effects of legitimacy on the liability- and R&D investment-innovation relationships in manufacturing SMEs

This study investigates the moderating effects of legitimacy on the liability- and R&D investment-innovation relationships in manufacturing small and medium-sized enterprises (SMEs). Examining 2659 firms in South Korea, this study demonstrates that organizational legitimacy has not only the direct effect on innovation performance but also moderating effects on the relationship between liability and R&D expenditure and innovation performance. The present research provides evidence that normative legitimacy alleviates the adverse effects of liability on new product launches and the innovative sales revenue. Further, normative legitimacy weakens the relationship between R&D investment and innovation, whereas cognitive legitimacy can aggravate the adverse effects of liability but enhance the positive effects of R&D expenditure on the innovative sales revenue. The analysis presented in this study also demonstrates that the anti-synergistic interactions between regulatory, normative, and cognitive legitimacy can hinder the overall positive effects on innovation performance. This study extends the literature on legitimacy in the context of innovation by exhibiting that the strategic dilemma of SMEs regarding innovation can be a serious concern because of the conflicting roles of legitimacy on the liability-innovation and R&D invest-innovation relationship.