ENTRY INTO EMERGENT AND UNCERTAINPRODUCT-MARKETS: THE ROLE OF ASSOCIATIVE RHETORIC

GWENDOLYN K. LEESRIKANTH PARUCHURI

University of Florida

We analyze how firms use media-associative rhetoric in their decisions to enteremergent and uncertain product-markets. In the context of our study, this type ofrhetoric associates the logics of firms’ existing markets with the not-yet-legitimatedlogics of a newly emerging market. Our panel study shows that firms enter suchmarkets faster when the associative rhetoric has higher (versus lower) volume, positive(versus negative) tenor, firms (versus journalists/analysts) as the source of information,and generalizations (versus specific cases) as the focus. We discuss the implications ofour findings for institutional theory and market entry.

How do firms make decisions about enteringemergent and uncertain product-markets? Whenproduct-markets are newly emerging, informationabout them is scarce and uncertainty is high (Al-drich & Fiol, 1994). One way for a firm to reduceuncertainty and act without being punished is tofollow legitimate logics (DiMaggio & Powell, 1983;Meyer & Rowan, 1991). Logics are “the underlyingassumptions, deeply held, often unexamined,which form a framework within which reasoningtakes place,” (Horn, 1983: 1) and that provide“guidelines for practical action” (Rao, Monin, &Durand, 2000: 795). However, the logics of newlyemerging markets have not yet been legitimatedduring the early stage of market development(Suchman, 1995; Suddaby & Greenwood, 2005). So,a firm acting in such contexts will benefit if theemerging logics of new markets become consistentwith established pillars of legitimacy (DiMaggio &Powell, 1983) but run the risk of stigmatization ifthe emerging logics become discredited (Sanders &Tuschke, 2007; Sutton & Callahan, 1987). However,firms do enter newly emerging markets even beforethe markets become established and legitimated(Lieberman & Montgomery, 1988).

The focus of this study was to seek to understandwhich firms will enter an emergent and uncertainproduct-market when market logics are not yet le-gitimated. Because firms are embedded in institu-tional environments (DiMaggio & Powell, 1983;

Lawrence & Suddaby, 2006), the range of optionsspecified by institutional logics constrains firms’actions, even though they decide their own actions(Aguilera & Jackson, 2003; Lawrence & Suddaby,2006; Oliver, 1991, 1992). A firm’s entry into anewly emerging market whose logics are not yetlegitimated depends on how the new logics cogni-tively fit with the existing institutional logics inwhich the firm is embedded (DiMaggio & Powell,1991; Geertz, 1973; Meyer & Rowan, 1991; Such-man, 1995). The firms that assess the fit to be sig-nificant are more likely to adopt the new logics andenter the newly emerging market.

In this article, we examine how firms use themedia’s “associative rhetoric”—rhetoric that linksdifferent concepts (Sperber, 1985, 1996; Sperber,Premack, & Premack, 1995)—to evaluate the fit be-tween the new and existing logics. The effective-ness of associative rhetoric in providing the fit be-tween the new logics and the existing logics variesaccording to the attributes of rhetoric. Becauseprior research has suggested that the persuasive-ness of information varies with its volume, tenor,source, and focus (Abrahamson, 1997; Abrahamson& Fairchild, 1999; Cialdini, 1993; Lounsbury &Glynn, 2001; Miller, 2005; Pollock & Rindova,2003), we study how these four attributes of themedia’s associative rhetoric influence a firm’s de-cision to enter newly emerging markets. Combiningideas from research on learning, information pro-cessing, persuasion, and decision making underuncertainty, we hypothesize that firms enter fasterwhen such associative rhetoric has higher (ratherthan lower) volume, positive (rather than negative)tenor, firms (rather than journalists/analysts) as thesource of information, and generalizations (ratherthan specific cases) as its focus. Our predictions

Both authors contributed equally, and the order ofauthorship is alphabetical. We thank the University ofFlorida’s College of Business Administration and CIBERfor funding this research. We also acknowledge valuablesuggestions and comments by Jason Colquitt, AssociateEditor Chet Miller, Hayagreeva Rao, and Wei Shen.

� Academy of Management Journal2008, Vol. 51, No. 6, 1171–1188.

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about entry and associative rhetoric are empiricallysupported by the patterns of entry involving sixrandomly chosen product-markets between theyears 1989 and 2003.

This article extends research on actor-centeredinstitutional theory (Aguilera & Jackson, 2003;Lawrence & Suddaby, 2006; Sanders & Tuschke,2007; Scharpf, 1997). Prior work in this stream ofresearch has not addressed how firms assess the fitbetween their institutional logics and new, not-yet-legitimated logics, such as those related to a newlyemerging market. An assessment of the cognitive fitbetween the new logics and the existing logics isrequired for firms to adopt new practices (Such-man, 1995; Zucker, 1983). Our study is among thefirst to focus on a firm’s assessment of the cognitivefit between the new logics and the firm’s existinglogics by using a concept that is explicitly rela-tional in nature—associative rhetoric. More inter-estingly, we shed light on the effectiveness of dif-ferent attributes of associative rhetoric.

Our study also contributes to the substantivebody of research on market entry. Market entrydecisions have been explored from various per-spectives, such as entry barriers (Caves & Porter,1977), firm resources and capabilities (Nelson &Winter, 1982; Penrose, 1959; Silverman, 1999), net-work resources (Lee, 2007), and mimetic institu-tional processes (Haunschild & Miner, 1997; Have-man, 1993; Scott, 2000). Our work complementsthese earlier studies by exploring the role of asso-ciative rhetoric in the interpretive context for entrydecisions. Adopting a sociocognitive perspective,we examine how a firm uses associative rhetoric,particularly the various attributes of associativerhetoric, in assessing the fit between a newlyemerging product-market and the firm’s existingmarkets, and in analyzing the timing of entry into amarket that is rhetorically associated with thefirm’s existing markets.

THEORETICAL BACKGROUND

The Actor-Centered Institutional Perspective

Neoinstitutional theory suggests that institutionsshape the nature of economic activities by specify-ing the logics that govern the perceptions of anactor’s options (DiMaggio & Powell, 1991; Powell,1991; Zukin & DiMaggio, 1990). In response to the“oversocialized” view of this theory, a few scholarshave developed a new perspective called “actor-centered institutionalism” (Aguilera & Jackson,2003; Sanders & Tuschke, 2007; Scharpf, 1997;Zucker, 1988) or “institutional work” (Lawrence &Suddaby, 2006). Those working in this stream have

viewed institutions as specifying the range of op-tions an actor can adopt but not determining spe-cific organizational actions (Oliver, 1991, 1992).

As cognitive models or rationalizations withinwhich reasoning takes place, logics provide “guide-lines for practical action” (Rao, Monin, & Durand,2000: 795). Legitimated logics limit an actor’s ques-tions about the appropriateness, desirability, andinterpretability of prescribed actions (Hannan &Carroll, 1992; Suchman, 1995). Specifying legiti-mated logics is one method by which institutionsrestrict the range of options for firms (DiMaggio &Powell, 1991; Powell, 1991; Zukin & DiMaggio,1990).

Logics, however, are not always legitimate, andtheir meanings are not always clear to an actor.When new logics emerge, they are still not part ofthe broader cultural and belief systems prevailingin an institutional arena (Haveman, Rao, Paruchuri,2007), and thus lend themselves to different inter-pretations. Firms might construe the same logicdifferently when its appropriateness and desirabil-ity are unclear (Dobbin, Sutton, Meyer, & Scott,1993; Edelman, 1992). The consequence of inter-pretations that turn out to be inconsistent with therelevant broader cultural and belief systems is thata firm might be at risk of losing its legitimacy.

Some new logics become legitimate over time,but others do not (Abrahamson, 1991). Prior workin this stream of research has suggested that somefirms play an important role in this process (Leble-bici, Salancik, Copay, & King, 1991; Miner & Hauns-child, 1995; Podolny, 1993). For instance, domi-nant or high-status firms have been shown to play akey role in legitimating newly emerging logics(Greenwood, Suddaby, & Hinings, 2002; Kitchener,2002; Lounsbury, Ventresca, & Hirsch, 2003). Suchfirms provide cognitive legitimacy to new logics byassociating them with existing institutions (Harga-don & Douglas, 2001; Lawrence & Suddaby, 2006;Van de Ven & Garud, 1993). As an example, firmslegitimated new modes of transportation based onautomobile engines in the early 1900s by usingpopular reliability contests as a device (Rao, 2004).Despite this research, we do not know much abouthow firms act in the context of the emergence ofnew logics (Suddaby & Greenwood, 2005). In thisarticle, we focus on how firms use the media indeciding on their actions.

Media, Rhetoric, and the Comprehensibility ofNew Logics

One theme in institutional theory focuses on therole of media in institutionalizing logics (Scott,2000; Suddaby & Greenwood, 2005). Hirsch argued

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that the media act as “a primary institutional regu-lator of innovation” (1972: 643) because they serveas an intermediary that stands between the creatorsof logics and the consumers of logics. The successof such intermediaries depends on their ability toidentify and satiate incipient preferences (Abraham-son, 1996; Hirsch, 1972).

The media, particularly print media, have beenshown to enable the creation of management fash-ions and fads through the use of rhetoric (Abraham-son, 1991; Barley, Meyer, & Gash, 1988; Deephouse,2000; Pollock & Rindova, 2003). “Rhetoric” refersto interest-laden discourse (Freedman & Medway,1994). It identifies and institutionalizes certain log-ics, which create the beliefs that managers mustpursue certain goals and follow certain methods inachieving these goals (Abrahamson & Fairchild,1999; Staw & Epstein, 2000). One example is thespread of quality circles, in which preferences ofmanagers were molded to define quality as a prob-lem, and actions were limited to a particular reper-toire of techniques for addressing the problem(Cole & Scott, 2000).

The media use rhetoric to delineate a repertoireof cognitive models organizations might use, andrhetoric forms an essential element in the manage-ment of the cognitive legitimacy of logics (Burke,1969; Suddaby & Greenwood, 2005). The media notonly identify and select rhetoric, but also occupythe ideal position for transmitting the underlyinglogics of an institutional field until the logicsgain cognitive legitimacy in the field (Lounsbury& Glynn, 2001; Pollock & Rindova, 2003; Scott,2000). Specifically, the media can popularizerhetoric and create perceptions of appropriate-ness, desirability, and interpretability for suchlogics (DiMaggio, 1997; Suchman, 1995). Al-though media rhetoric specifies the range of op-tions firms can adopt, it does not determine spe-cific actions (Oliver, 1991, 1992). Below, wedevelop a theoretical conceptualization of howfirms use one type of media rhetoric—associativerhetoric—in making their decisions to enternewly emerging markets.

THEORY AND HYPOTHESES DEVELOPMENT

Associative Rhetoric, Cognitive Elaboration,and Legitimacy

Associated logics provide one powerful forcethat can lead a firm to adopt new logics about anemerging market. Integration of new logics underthe umbrella of preexisting institutional logics cre-ates “facticity,” (the state of being a fact) for thenew logics (Zucker, 1983). As shown in research on

the brain and in cognitive science, actors are morelikely to learn new elements faster and better whenthe new elements are linked to existing elementsstored in memory (Ebbinghaus, 1913; Rizzuto &Kahana, 2001). This learning by association is ef-fective because it generates cognitive elaborationwhereby new elements are integrated into the ac-tor’s memory along with their connections to exist-ing elements (Greenwald & Leavitt, 1984; Loftus,1974; Markovitch, 1981; Quillian, 1968). A firm canlearn through the employment of organizationalelements that are symbolic in nature to create suchlinks (Hargadon & Douglas, 2001; Rao, 2004), andit can also effectively learn about new logics fromthe media’s associative rhetoric—which associatesnew logics with the firm’s existing logics—becauseof cognitive elaboration.

During the process of cognitive elaboration, anew logic and its association with existing logicsbecome activated whenever the rhetorically associ-ated logics are activated (Childers & Houston, 1984;Loftus, 1974; Meyers-Levy, 1991). Because firmsthat have already adopted the rhetorically associ-ated logics activate those logics in their daily oper-ations, and because of the rhetoric associating theirexisting logics with the not-yet-legitimate new log-ics, the association with new logic is activated fre-quently for such firms. Through such repeated in-vocations of association of new logics with alreadylegitimated logics, these firms become familiarwith the new logics, and this familiarity in turnenables them to cognitively accept and adopt thenew logics. Once firms cognitively accept andadopt a new logic, it is independently seen as ap-propriate, desirable, and interpretable (DiMaggio &Powell, 1991; Geertz, 1973; Meyer & Rowan, 1991;Suchman, 1995).

The Attributes of Associative Rhetoric and Entryinto Newly Emerging Markets

As we have argued thus far, associative rhetoricfacilitates firms’ cognitive acceptance of new log-ics. However, the effectiveness of associative rhet-oric in providing the cognitive link between thenew and the existing varies. Because associativerhetoric is a specific type of information providedby the media, we analyze its effectiveness by exam-ining the attributes of information, which play asignificant role in affecting important cognitiveprocesses, including impression formation (Fiske &Taylor, 1991), judgment (Heath & Tversky, 1991),and persuasion (Cialdini, 1993). Our research andthat of others suggests that the effectiveness of infor-mation varies with four attributes: volume, tenor,source, and focus (Abrahamson, 1997; Abrahamson &

2008 1173Lee and Paruchuri

Fairchild, 1999; Cialdini, 1993; Lounsbury & Glynn,2001; Miller, 2005; Pollock & Rindova, 2003). Webuild our hypotheses about how a firm’s decision toenter a newly emerging market is influenced by thesefour attributes of associative rhetoric. Each hypothe-sis addresses one type of attribute and examines itseffect on the timing of a firm’s diversification into anemerging market.

Volume. A firm’s cognitive acceptance of new log-ics can be enhanced by popularization (Aldrich &Fiol, 1994; Suchman, 1995), which is represented bythe volume (Pollock & Rindova, 2003) of associativerhetoric. The volume of associative rhetoric posi-tively influences a firm’s acceptance of new logics forat least two reasons. First, the volume of associativerhetoric is related to exposure, which increases famil-iarity and liking of the association between new andexisting logics (Zajonc, 1968). The familiarity andliking of this association would confer cognitive le-gitimacy on the new logics. This cognitive legitimacyof the new logics would continue to exist even in theabsence of their rhetorically associated existing logics(Geertz, 1973; Suchman, 1995). Firms are more likelyto adopt new logics because of this familiarity andliking, as shown by prior research on trust innetworks and on investments (Gulati, 1995; Hu-berman, 2001). Second, the perception of risklinked with the new logics is reduced with in-creased exposure to associative rhetoric (Heath &Tversky, 1991). A firm with high exposure wouldthen perceive relatively little risk in adoptingnew logics. In the context of a newly emergingmarket, a firm whose existing logics are morefrequently associated with the new logics is morelikely to adopt such logics and enter the newlyemerging market faster because of the combinedeffects of familiarity and perceived reduction inrisk. Thus, we propose:

Hypothesis 1. The higher the volume of themedia’s rhetoric associating an emerging mar-ket with a firm’s existing markets, the earlierthe firm enters the emerging market.

Tenor. Because the media create a prominent in-terpretive environment in which organizations seekcues for decision making (Gurevich & Levy, 1985), afirm’s decision to adopt new logics is influenced bythe tenor of the associative rhetoric. The positive(negative) tenor of associative rhetoric provides pub-lic expressions of approval (disapproval) of the asso-ciation between new logics and existing logics (Els-bach, 1994; Lamertz & Baum, 1998). These publicexpressions serve as a “social proof” (Golan & Want,2001; Rao, Greve, & Davis, 2001). Social proof is apsychological phenomenon that occurs in uncertainsituations in which actors cannot decide the appro-

priate assessments and depend on others’ assess-ments by making the assumption that others are moreinformed about the situation than the actors (Cialdini,1993). The social proof in the context of uncertainsituations molds the opinions and assessments of ac-tors (Hirsch, 1972). Given the uncertainty about thelogics of an emerging market, judgments about themin public opinions, rather than actors’ own privateassessments, form the basis for evaluating new logics(Bikhchandani, Hirschfleifer, & Welch, 1992; Fried-land & Alford, 1991). Because the positive (negative)associative rhetoric serves as a cognitive model ofactions to perform (or model of actions to avoid), afirm is more likely to enter an emerging market if therelative proportion of the media’s rhetoric that asso-ciates the emerging market with the firm’s existingmarkets has more positive than negative tenor. Thatis, a firm will not only be more likely to enter a newlyemerging market if a higher proportion of the associa-tive rhetoric is framed positively, but also more likelyto avoid entering the market if a higher proportion ofthe associative rhetoric is framed negatively.Therefore, we propose:

Hypothesis 2. The higher the relative propor-tion of associative rhetoric with a positive ver-sus associative rhetoric with a negative tenor,the faster a relevant firm enters the emergingmarket.

Source. Although the media create an interpre-tive context, the information presented in the me-dia can be gathered from diverse sources, such asjournalists, analysts, and firms. We argue that afirm is more likely to adopt new logics if associa-tive rhetoric stems from firms than if associativerhetoric stems from journalists or analysts, for thefollowing reasons: First, learning research positsthat the effectiveness of learning is based on thetype of learning (Dewey, 1938; Kolb, 1984). Jour-nalists and analysts are actors who observe actionsand opine, but firms are actors that take actions andlearn directly from them. Firms have practicallygrounded expertise that journalists/analysts onlyobserve (Chi & Glaser, 1988). Because of this prac-tically grounded expertise, a firm is more likelyto find the associative rhetoric stemming fromfirms—as compared to the associative rhetoricstemming from journalists/analysts—more persua-sive and hence more effective in making the asso-ciated new element desirable and appropriate(Cialdini, 1993; DeBono & Klein, 1993). Second,under uncertainty, actors trust similar others more(Haveman, 1993; McPherson, Smith-Lovin, & Cook,2001; Tsui, Egan, & O’Reilly, 1992). Drawing fromFestinger’s theory of social comparison (Festinger,1954), Salancik and Pfeffer (1978) found that, in the

1174 DecemberAcademy of Management Journal

absence of objective bases of evaluation, similaritywas used as the criterion of choice. At the organi-zation level, Westphal and Zajac (1995) showedthat demographic similarity influenced the selec-tion of directors, and Haveman (1993) showed thatorganizations imitate similar others in their entrybehavior under uncertainty. Since journalists/ana-lysts are less similar to the firms contemplatingentry decisions, firms are more likely to trust andbecome persuaded by the associative rhetoric stem-ming from other firms than by that stemming fromjournalists/analysts.

Hypothesis 3. The higher the relative propor-tion of firms versus journalists/analysts servingas the source of associative rhetoric, the earliera firm enters an emerging market.

Focus. Associative rhetoric can appear in con-texts with different foci, ranging from a generalfocus, where broad trends and general principlesare reported; through a more specific focus, wherethe actions of several firms are reported; to a highlyspecific focus, where the actions of one or twofirms are reported. We argue that a firm is morelikely to adopt new logics if the relevant associativerhetoric occurs in the context of the general case(generalization) than if it occurs in the context ofspecific cases, for the following reasons. First,learning theory suggests that generalization in-volves the formulation of a concept through iden-tifying essential features that are common to differ-ent observations (Mitchell, Keller, & Kedar-Cabelli,1986). As such, generalization represents a moreadvanced stage of learning, as compared to specificcases (Holland, Holyoak, Nisbett, & Thagard, 1986).Because of this perception of advanced learning, afirm is likely to find generalizations more convinc-ing than specific cases (Baesler & Burgoon, 1994;Hoeken, 2001).1 Moreover, “social proof” suggeststhat, under uncertainty, actors unable to make theirown assessments prefer to base their judgments onothers’ opinions (Cialdini, 1993; Golan & Want,2001; Rao et al., 2001). Generalization reflects oth-ers’ opinions and provides a concept that has beenformulated for ready consumption. In contrast, spe-

cific cases require actors to make their own discov-ery, assessment, and inference (Holland et al.,1986). Consequently, a firm is more likely to takeaction according to the associative rhetoric basedon generalization than that based on specificity.Therefore, we propose:

Hypothesis 4. The higher the relative propor-tion of general versus specific cases in associa-tive rhetoric, the faster a firm enters an emerg-ing market.

METHODS

Sampling Frame and Empirical Setting

We designed our sampling frame to allow us totest the effect of associative rhetoric on the rate ofdiversifying entry from various “origin markets” toa single “destination market.” We randomly se-lected 6 product-markets from 27 product-marketsrelated to the manufacturing of network equipmentused in computing and communications. We thensampled from the population of firms producing inat least 1 of 5 of these markets, which we deemedthe origin markets. We deemed the 6th product-market the destination market. We chose “network-ing switch” as the destination market because itwas the last of the 6 selected product-markets toemerge. In addition, there were contradicting opin-ions, at least early on, concerning the usefulness ofa firm’s ever entering the networking switch marketas well as the optimal timing of entry. The overallsample covers a total of 459 firms and 1,824 firm-year observations. A firm became a part of the sam-ple—that is, at risk of entering the destination mar-ket—when it entered any of the 5 origin markets; itfell out of the risk set after entering the destinationmarket.

Data Sources

We identified the annual populations of firms ineach of the six product-markets from the CorpTechdirectory, Who Makes What. This directory, pub-lished annually starting in 1987, provides detailedproduct listings in fine-grained classifications byfirm, product code, and year for about 50,000 high-technology establishments. The CorpTech data arefrequently updated (63 percent of the records areverified within one year of the publication date) viatelephone interview (66% of the records) and writ-ten communication (34%). We also cross-checkedthe CorpTech directory against the Standard &Poor’s Compustat database and found that most ofthe publicly traded firms were also listed in theCompustat database.

1 We note that vividness does not necessarily differamong these categories. Among the articles examined inthis study, some articles about general trends providedvivid details about those trends, while some articlesabout specific cases lacked vivid details about those spe-cific cases and mentioned them merely in passing. Also,prior research has shown that the vividness of informa-tion does not necessarily depend on whether the infor-mation is presented in the form of case examples orsummary reports (Dickson, 1982).

2008 1175Lee and Paruchuri

In addition to product listings, the directory re-ports year of founding, employee head count, exec-utives, and contact information. These establish-ments are located in the United States, and theyinclude domestic- and foreign-owned, public andprivate parent companies, subsidiaries, and divi-sions. If establishments were subsidiaries, divi-sions, or business units of a parent/holding com-pany, we aggregated the product codes at the levelof the parent/holding company.

Compared to the data sources used in other tech-nometric studies, the CorpTech directory has a ma-jor advantage, in that it provides much finer-grained classifications of products, depicting aricher and more complete picture of each industrysector. Although the Standard Industry Classifica-tion (SIC) code is a common choice for examiningthe combination of corporate activities (e.g., Teece,Rumelt, Dosi, & Winter, 1994), the distinction be-tween corporate activities even at the four-digit SIClevel is too coarse. Instead of the SIC codes, inwhich each code covers numerous product-mar-kets, we used the fine-grained CorpTech productclassification system.

The data source we used to analyze media rhet-oric was the Lexis-Nexis Academic database. Thisdatabase has been used in several studies as a basisfor capturing industry discourse (Abrahamson &Fairchild, 1999; Ghaziani & Ventresca, 2005; Pol-lock & Rindova, 2003). From Industry & MarketNews, a Lexis-Nexis database, we selected journalsin a very broad fashion that meet the followingcriteria: (1) the journal started before 1989, the yearwhen the destination market emerged; (2) the jour-nal continued its coverage until at least 2003, theyear when the data collection phase of our studyended; and (3) the journal covered the computerand telecommunications industry. The systematicselection procedure yielded the following journals:BusinessWeek, Business Wire, the Christian Sci-ence Monitor, Computerworld, Industry Week, In-foWorld, PR Newswire, the Washington Times, Net-work World, Newsweek, and U.S. News & WorldReport. From these journals, we then identifiednews articles in which the content contained thekeywords of the destination market and the key-words of at least one origin market. The keywordswe used are based on the product and technologydescriptions about the six markets provided in theCorpTech directory, which provides both market de-scriptions and the keywords associated with eachmarket. In addition, the keywords were indepen-dently verified by a technical expert who had morethan ten years of experience in communications en-gineering for their comprehensiveness and represen-

tativeness of the individual markets. See the lowerportion of Figure 1 for the list of keywords.

Dependent Variable and Analytical Technique

We split each firm observation into annual spells.The dependent variable is a categorical variable,coded as 1 if the firm entered the destination marketin year t, and 0 otherwise. Applying survival analysisto the event history data, we assumed that the dura-tion, or the amount of time that a firm spends beforeentering the destination market, follows a stochasticprocess. In estimating the hazard of market entry, weused the proportional-hazard specification, which isalso a fixed-effect model known as the Cox model(1972) to study time to event. The advantage of theCox model was that it released us from making as-sumptions about the form of duration dependence inthe hazard rate. Because the Cox model is semipara-metric, in that the baseline hazard takes on no partic-ular functional form, we can estimate the hazardfunction without a priori constraints on functionalforms. We let T be the entry time, Xkt be a vector oftime-varying covariates, and Zk be a vector of time-invariant covariates. We used X(t) to denote the valueof X at time t, and X(t) � �X(s):0 � s � t} to denote thehistory of the covariates on the failure time throughthe hazard function. The Cox model specifies that

�(t�X� ) � �0(t)exp(�X�t�). (1)

Because each firm has multiple observations, weestimated robust standard errors to take into con-sideration the nonindependence of these observa-tions. Finally, to ensure proper causal inference,time-varying variables were lagged by one year;that is, the first year of entry observation starts withthe year 1990 while the time-varying variables startwith the year 1989. These one-year lagged variablesare represented in their description below withtime notation t.

Independent Variables

Measures of associative rhetoric. We constructedfour measures for the attributes of the associativerhetoric to which a firm is exposed. The first measureassessed the volume of associative rhetoric. Expertsof content analysis who study associations havefound measures based on keyword co-occurrence tohave content validity and face validity (McKinnon,1977; Roberts, 1989; Weber, 1985). So, we examinedwhether the keywords of the destination market ap-peared jointly with the keywords of the origin mar-ket(s) in the same article. Suppose firm i is in originmarket j in year t, prior to entering destination market

1176 DecemberAcademy of Management Journal

x. Let Cxjt be the number of news articles that containthe keywords of destination market x, and the keywords of origin market j. To measure the volume ofassociative rhetoric, we used the mean article countacross a firm’s products, calculated as

Volumeit ��j�1

Jit Cxjt

Jit

,

where Jit is the total number of origin markets inyear t that firm i is in. We used the mean articlecount as opposed to the sum because the number oforigin markets in which a firm was a producerdiffered by firm and by year.

The second measure, for the tenor of the associa-tive rhetoric, evaluated the nature of the relation-ship between the origin market(s) and the desti-

nation market. Four raters who were seniorundergraduates majoring in management at a largepublic university were asked to independentlyevaluate the tenor of each article as positive, nega-tive, or neutral.2 Associative rhetoric was deemed

2 We gave the raters the following instructions for cod-ing: Tenor-positive was coded when a relationship be-tween markets A and B was positive, meaning that thetwo were complementary and synergistic. For example,the value of A is enhanced when used in conjunctionwith B; A and B share a common success factor; or thedevelopment of A and B require the same capabilities.Tenor-negative was coded for a negative relationship,meaning that the two had conflicts. For example, A andB compete for the same customers; A is not compatible

FIGURE 1Total Amount of Associative Rhetoric by Year

0

20

40

60

80

10 0

12 0

14 0

16 0

18 0

20 0

1989

19

90

1991

19

92

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

Disk dri ve

Netw ork interface car d

Repeater

Communications trun k

High-speed T-1a

Articles Associating an Origin Market with the Destination Market

Product-Markets Keywords (from CorpTech)b

DestinationData communications network switches Switch

OriginDrives in which the physical disk is not removable Disk driveNetwork interfaces Network interface card (NIC)Data repeaters RepeaterCommunications trunks TrunkHigh-speed transmission equipment T-1 equipment

a T-1 is a type of high-speed transmission equipment.b We excluded keywords in the form of verbs. For example, we only retained articles in which the keyword “switch” was

a regular noun, such as “networking switch” or “networking switches,” or a verbal noun (gerund), such as “networkswitching.” In addition, we restricted the context of the media rhetoric examined to the computing and communicationsindustry by adding a search restriction requiring at least one of the following terms to also appear in an article: “data,”“network,” “communication,” “LAN,” “ATM,” “backbone,” “data activated electronic,” “internet,” or “telecom.”

2008 1177Lee and Paruchuri

to have a positive tenor if an article described therelationship between the two product-markets ascomplementary or synergistic. Associative rhetoricwas deemed to have a negative tenor if the articledescribed the two product-markets as competing orconflicting. Associative rhetoric was deemed tohave a neutral tenor if the article did not specify therelationship between the two product-markets. Fol-lowing prior research (Deephouse, 1996, 2000; Pol-lock & Rindova, 2003), we measured the tenor ofassociative rhetoric with the Janis-Fadner coeffi-cient of imbalance (Janis & Fadner, 1965). As priorresearch has suggested (Budd, Thorp, & Donohew,1967; Coombs, 1992; Hurwitz, Green, & Segal,1976; Janis & Fadner, 1965), this coefficient mea-sures the relative proportion of articles that havepositive versus negative tenor each year. This coef-ficient has many useful properties, including (1) ameaningful zero point when there are equal num-bers of positive- and negative-tenor articles, (2) adecrease in the coefficient when the number ofnegative-tenor articles increases, and (3) an in-crease in the coefficient when the number of posi-tive-tenor articles increases.

Tenorit

�Pit(Pit � Nit)

Tit2 if Pit � Nit;

�Nit(Pit � Nit)

Tit2 if Pit � Nit;

� 0 if Pit � Nit,

where Pit is the count of articles with a positivetenor associating the destination market with firmi’s origin market(s); Nit is the count of articles witha negative tenor associating the destination marketwith firm i’s origin market(s); and Tit is the totalcount of articles associating the destination marketwith firm i’s origin market(s), including articlesthat are neutral in tenor. When the tenor is allpositive, the measure reaches the maximum valueof 1; when the tenor is all negative, the measurereaches the minimum value of �1.

The third measure, a measure of the source of theassociative rhetoric, assessed whether the associationbetween the origin market(s) and the destination mar-ket stemmed from firms or from journalists/analysts.Four raters were asked to independently evaluatethe source of associative rhetoric. Associative rhet-oric was considered to stem from a firm if an articletranscribed that firm’s press release. Specifically,articles of this type are published in the PR News-

wire and identify contact people from covered com-panies as their sources. Associative rhetoric wasconsidered to stem from journalists/analysts ifan article reported an opinion of a journalist or aforecast of an analyst. Specifically, we identifiedarticles as of this type if they had the followingcharacteristics: the content of the article was pre-dominantly the opinion or forecast of a journalist oranalyst; the article did not contain interview tran-scriptions; and no contact person from any com-pany covered in the article was identified as thesource of information. We coded associative rheto-ric as having a mixed source if an article reportedan interview conducted by journalists with firmmanagers. To measure the source of associativerhetoric, we adapted the Janis-Fadner coefficient ofimbalance:

Sourceit

�Fit(Fit � Ait)

Tit2 if Fit � Ait;

�Ait(Fit � Ait)

Tit2 if Fit � Ait;

� 0 if Fit � Ait,

where Fit is the count of articles that stem fromfirms associating the destination market with firmi’s origin market(s); Ait is the count of articles thatstem from journalists or analysts associating thedestination market with firm i’s origin market(s);and Tit is the total count of articles associating thedestination market and firm i’s origin market(s),including articles that have mixed sources. Whenfirms were an article’s only source, the measurereaches the maximum value of 1; when only jour-nalist/analysts were the source, the measure reachesthe minimum value of �1.

The fourth measure, assessing the focus of asso-ciative rhetoric, concerned the extent to which theassociation between the destination market and theorigin market(s) was based on generalization. Fourraters were asked to independently evaluate thefocus of associative rhetoric. The focus was consid-ered to reflect generalizations if an article reportedbroad industry trends and general principles; mul-tiple examples, if the article reports the actions ofthree or more firms; and one or two examples, if thearticle reported the actions of one or two firms. Tomeasure the focus of associative rhetoric, we againadapted the Janis-Fadner coefficient of imbalance:

Focusit

�Git(Git � Sit)

Tit2 if Git � Sit;

�Sit(Git � Sit)

Tit2 if Git � Sit;

� 0 if Git � Sit,

with B; or A causes B to fail. Tenor-neutral was codedwhen two product-markets had no relationship at all. Forexample, the article being coded did not mention anyrelationship between A and B.

1178 DecemberAcademy of Management Journal

where Git is the count of articles that report broadindustry trends and general principles associatingthe destination market with firm i’s origin mar-ket(s); Sit is the count of articles that report three ormore examples associating the destination marketwith firm i’s origin market(s); and Tit is the totalcount of articles associating the destination marketand firm i’s origin market(s), including articles thatreport one or two examples. When the focus re-flects only generalizations, the measure reaches themaximum value of 1; when the focus reflects onlymultiple cases, the measure reaches the mini-mum value of �1. (See the lower portion of theAppendix for a sample of news articles and rat-ers’ evaluations.)

Interrater agreement test. In examiningwhether the raters provided consistent evaluationson the tenor, source, and focus of associative rhet-oric, we conducted interrater agreement tests. Weused rwg, the interrater agreement index (James,Demaree, & Wolf, 1993), to measure the within-article agreement among the raters’ assessments.The mean rwg of each attribute of associative rhet-oric showed that evaluations among the raters wereconsistent (tenor: mean � .70; source: mean � .72;focus: mean � .73). Although there are no absolutestandards regarding acceptable levels of interrateragreement, prior research suggests a mean agree-ment index over .70 as indicating raters are inagreement (George, 1990; Janz, Colquitt, & Noe,1984, 1997).3

Control Variables

Imitation. Driven by mimetic pressures, firms arelikely to imitate others’ patterns of diversification(cf. Haveman, 1993). Controlling for imitation as adriver of market entry, we counted the number ofentrants that diversified into a destination marketin year t.

Competition. A high level of competition in ori-gin markets may drive the producers in those mar-kets to enter other markets. A low level of compe-tition in a destination market may attract entry(Hannan & Carroll, 1992). Even though the four-firm concentration ratio may better capture thelevel of competition, we unfortunately did not havethe annual sales-per-firm data of the studied desti-nation market needed to compute this ratio. So we

controlled for the number of firms in the originmarkets as well as for the number in the destinationmarket. For firms in more than one origin market,we used the origin density averaged over the num-ber of origin markets that they were in in year t.

The number of origin markets. Because we usedaverages for both origin density and associativerhetoric, we controlled for the number of originmarkets that a firm was in in year t. We could notcontrol for whether a particular origin market was afirm’s dominant market because we did not havethe data on a firm’s sales volume by market by year.

Media coverage of the destination market. Theamount of interest and the extent of institutional-ization in the destination market may also affectentry. Using article counts to measure interest andinstitutionalization of ideas has numerous prece-dents in organizational research (Abrahamson,1997; Abrahamson & Fairchild, 1999; Ghaziani &Ventresca, 2005). So, we controlled for the count ofarticles in which the key words of the destinationmarket appear in year t.

Firm-market relatedness. The research on theresource-based view of diversification has sug-gested that a firm tends to diversify into businessesthat rely on resources similar to those required inits extant businesses (see Farjoun [1994] on humanexpertise and Silverman [1999] on technologicalresources). So we controlled for the relatednessbetween a firm’s extant products and the destina-tion market. Taking advantage of CorpTech’s hier-archical product classification system, we identi-fied the industry sector of the destination market.Then we created a variable by counting the numberof product-markets in which a firm operated thatwere in the same industry sector as the destinationmarket in year t. Following prior research, we as-sumed that firm-market relatedness was higherwhen a firm operated in more product-markets inthe same industry sector as the destination marketand thus had more resources that were similar tothose required in the destination market.

Prior experience in market entry. A firm thathas had more prior experiences with market entryhas more learning than a firm that has had lessprior experience. In addition, a firm is more likelyto change when it has built up momentum tochange (Amburgey, Kelly, & Barnett, 1993). Thus,we calculated the cumulative number of marketsthat a firm had entered annually, since 1989. How-ever, we found that the momentum to change de-creased with the amount of time elapsed since afirm’s most recent entry event (Amburgey et al.,1993). Therefore, we additionally controlled for thenumber of years elapsed since a firm’s most recententry event.

3 We preferred using rwg to test interrater agreementbecause it captured the variation within an article. Wedid not use the intraclass correlation coefficient (ICC;Shrout & Fleiss, 1979) in assessing interrater reliabilitybecause the ICC would have compared the variationwithin an article to the variation between articles.

2008 1179Lee and Paruchuri

Firm age. Prior research has suggested that firmsare more prone to change at different ages (Aldrich,1999). Particularly, younger organizations havebeen argued to be more flexible. Thus, we con-trolled for firm age, which we measured as thenumber of years since a firm’s founding.

Product diversification. We also controlled forhow diversified a firm’s products were in year t.Prior research has shown that focused firms (spe-cialists) and diversified firms (generalists) displaydifferent patterns of expansion (Swaminathan,1995). As such, we used Blau’s heterogeneity index(1977) as a measure of product diversification:

�it � 1 � �k�1

K

Pikt2,

where pikt is the proportion of firm i’s productcount under industry sector k in year t. When eachof a firm’s products belongs to a distinct industrysector, the firm is heterogeneous/diversified andthe index reaches its maximum value of 1; when allof a firm’s products belong to the same industrysector, the firm is homogeneous/focused and theindex reaches its minimum value of 0.

Firm scope. Because a firm that has a largerscope may have more slack resources that can fa-cilitate entry into new markets, we controlled forthe total number of products that a firm producedin year t.

Left censoring. Some of the firms in our samplewere already in the risk set (at risk of entry) in theyear when the destination market emerged becausethey were operating in at least one of the originmarkets in that year, and other firms became part ofthe risk set (at risk of entering the destination mar-ket) after the destination market had emerged. Todistinguish between these two types of firms, wecoded a dummy variable to indicate “left censor-ing.” We coded the variable as 1 if a firm’s initialyear in the risk set was the year when the destina-tion market emerged, and 0 otherwise.

Network resources. Because network resourcesderived from strategic alliances play a significantrole in determining a firm’s entry timing (Lee,2007), we also controlled for network resourcescaptured by local density, which we defined as thedegree to which a firm’s contacts are connected toeach other and calculated by dividing the numberof actual ties by the number of all possible pairs,multiplied by 100.

RESULTS

The amount of media coverage associating thedestination market with the origin markets varied

widely, both among the latter and over time, asFigure 1 shows. For instance, the communicationstrunk market had 1,067 associative articles over1989–2002; the disk drive market had only 478during the same period. Then, coverage of someorigin markets showed peak years (e.g., the networkinterface card market shows a peak in 1998), butcoverage of others (e.g., the disk drive market) wasrelatively flat over the years.

Furthermore, the volume, tenor, source, and fo-cus of associative rhetoric to which a firm wasexposed over time varied widely as well. The vol-ume for some firms was as high as 186, while thatfor some was as low as 1 (mean � 73.5, s.d. � 44.8).The tenor for some firms was all positive (max. � 1)but, on average, the tenor was balanced for mostfirms (mean � .05). The source for some firms wassolely journalists/analysts (min. � �1), never thefirms themselves. The focus for some firms re-flected only generalization (max. � 1), but on theaverage, the focus was balanced for most firms(mean � .07). See Table 1 for the descriptive statis-tics and pairwise correlations.

We present the regression results in Table 2.Models show results for the entire period of entryobservations (1990–2003, inclusive, covering the14 years after the destination market emerged in1989). Among the control variables, we found thatmore firm-market relatedness, lower age, and widerfirm scope lead to a higher hazard rate of entry intothe destination market (model 2b, two-tailed tests).

As shown in model 2b, each attribute (volume,tenor, source, and focus) of associative rhetoric thatwe studied had a significant effect on the hazardrate of entry. The rate increased when a firm wasexposed to a higher volume of associative rhetoric(� � 0.01, p � .05). So Hypothesis 1 is supported. Aone standard deviation increase in the volume ofassociative rhetoric led to a 65 percent increase inthe hazard rate of entry.

In addition, the rate increased when a higherproportion of associative rhetoric had a positivetenor (� � 2.25, p � .01). Thus, Hypothesis 2 issupported. A one standard deviation increase inthe tenor of associative rhetoric, in terms of therelative proportion of positive (versus negative)tenor, led to a 25 percent increase in the hazard rateof entry.

Furthermore, the rate increased when a higherproportion of associative rhetoric stemmed fromfirms, as opposed to journalists/analysts (� � 1.56,p � .01). So Hypothesis 3 is supported. A onestandard deviation increase in the source of asso-ciative rhetoric, in terms of relative proportion offirms (versus journalists/analysts) as the source, ledto an 81 percent increase in the hazard rate of entry.

1180 DecemberAcademy of Management Journal

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Lastly, the rate increased when a higher proportionof associative rhetoric reflected generalization, as op-posed to specific cases (� � 1.41, p � .05). Hypothesis4 is therefore also supported. A one standard devia-tion increase in the focus of associative rhetoric, interms of the relative proportion of generalizations(versus specific cases) as the focus led to a 23 percentincrease in the hazard rate of entry.4

Robustness Checks

As shown in models 3 and 4, we replicated thefull model across two time periods of differinglength (1990–2001 and 1990–1999) as robustnesschecks. In testing the sensitivity of our findings tothe choice of time periods, we repeated our analy-sis at two-year increments subtracted from the fullmodel (14 years covered in model 2). In both the12-year model (model 3) and the 10-year model(model 4), we found the volume, tenor, and sourceof associative rhetoric to have the same effects asin the 14-year model. However, the focus of asso-ciative rhetoric did not have an effect on the timingof entry in either the 12- or the 10-year model. Thisresult shows that there is no significant differencebetween associate rhetoric with generalizationsand with specific examples for shorter time peri-ods. This, along with the main significant, positiveresult of focus, indicates that the acceptance ofassociative rhetoric based on generalizations re-

4 One additional reason to expect a positive relationbetween associative rhetoric and rate of entry is related tothe preemption strategies firms follow. Specifically,firms announce their entry into a market prior to enteringit in hopes of warding off their competition. If such apreemption strategy drives results, we should see a largenumber of articles suggesting that firms either intend orplan to enter the market. We would also expect preemp-tion to occur in the early stages of the evolution. Address-ing these concerns, we gathered additional evidence byanalyzing the content of the articles published between1989 and 1994, inclusive. The analysis shows that themaximum number of such “intend to enter” articles ac-counted for merely 4.5 percent of the total. Hence, webelieve the content and the rhetoric in the articles we

examine here do not reflect firm’s intentions that lead tosubsequent follow-up actions.

TABLE 2Estimating the Hazard Rate of Entering the Destination Marketa

Variables

Model 1 Model 2 Model 3 Model 4

1990–2003 1990–2003 1990–2001 1990–1999

Volume of associative rhetoric 0.01* (0.01) 0.02** (0.01) 0.01* (0.01)Tenor of associative rhetoric 2.29** (0.82) 2.58** (0.87) 3.26** (0.75)Source of associative rhetoric 1.57** (0.50) 1.79** (0.52) 2.95** (0.65)Focus of associative rhetoric 1.43* (0.70) 1.87 (1.36) 0.92 (2.15)Number of diversifying entries in destination

market0.03 (0.02) 0.01 (0.02) 0.02 (0.02) �.004 (0.03)

Number of firms in destination market �0.01† (0.00) �0.003 (0.01) 0.01 (0.01) �0.02 (0.02)Number of firms in origin market(s) 0.01* (0.00) �0.00003 (0.01) �0.01 (0.01) �0.01 (0.01)Number of origin market(s) firm is in �0.31 (0.31) �0.21 (0.32) 0.08 (0.28) 0.04 (0.30)Media coverage of destination market 0.01* (0.00) �0.01 (0.01) �0.02** (0.01) 0.002 (0.02)Firm-market relatedness 0.86** (0.06) 0.95** (0.07) 0.95** (0.06) 1.04** (0.09)Firm’s prior experience in market entry �0.03† (0.02) �0.03† (0.02) 0.03** (0.01) 0.03* (0.01)Years since firm’s most recent entry 0.03 (0.03) 0.03 (0.03) 0.07* (0.03) 0.04 (0.04)Firm’s age divided by 100 �0.69 (0.44) �0.90* (0.43) �1.46** (0.55) �1.11† (0.65)Product diversification �0.84† (0.45) �0.76† (0.45) �0.89† (0.46) �0.89† (0.50)Firm’s number of products 0.02** (0.00) 0.02** (0.00) 0.02** (0.00) 0.02** (0.01)Left-censoring 0.40 (0.30) 0.37 (0.28) 0.30 (0.24) 0.17 (0.24)Network resources (local density)b 0.00 (0.00) 0.01† (0.01) �0.001 (0.00) �0.01 (0.00)Observations 1,824 1,824 1,498 1,133Number of firms 459 459 409 327Number of entry events 93 93 84 62Log pseudo-likelihood �443 �435 �375 �253Wald statistic 316** 318** 341** 227**

a Robust standard errors are in parentheses.b The results remain robust when different measures of network resources studied in Lee (2007) are used as control variables.

† p � .10* p � .05

** p � .01

1182 DecemberAcademy of Management Journal

quires a longer period to develop. So the institu-tional logics are still evolving, even given the 12 yearssince market emergence, in this particular case.

To test for any interaction effects between the mainvariables of interest, we also performed supplementalanalysis. Particularly, because the tenor of associativerhetoric represents the nature of association with pos-itive (negative) tenor, suggesting actions to pursue(avoid), tenor could moderate the effects of other vari-ables on the rate of entry. We tested for several inter-action effects (volume � tenor, volume � source,volume � focus, tenor � source, tenor � focus,source � focus), and only one of the six interactionterms was statistically significant.

Next, we recognize that the media coverage aboutthe destination market, used as a control variable,has high correlations with the source of associativerhetoric as well as the number of firms in the des-tination market used in the model. As a robustnesscheck, we first found that the model has a varianceinflation factor mean of 2.02, which is much lowerthan the critical threshold value of 10 (Kennedy,1998). We then performed a sensitivity test by remov-ing the media coverage about the destination marketfrom the model. The sensitivity test showed that ourfindings remain robust without controlling for themedia coverage about the destination market.

In addition, we considered several other controlvariables, which we did not use in the primarymodels because they were highly correlated withthe variables used. For example, firm size, mea-sured as the number of employees, had a high cor-relation with firm age. As another example, macro-economic environment, measured as GDP, had ahigh correlation with destination market density.Our findings remain robust when these other con-trol variables are used instead.

DISCUSSION

This article shows that media rhetoric associat-ing an emergent and uncertain product-marketwith a firm’s existing markets influences the timingof the firm’s entry into the emergent market. Spe-cifically, the speed with which a firm adopts newlogics depends on four attributes of associativerhetoric. First, a firm adopts new logics faster whenthe volume of associative rhetoric increases. Be-cause the association gains familiarity and liking,new logics gain acceptance, and the perceived riskslinked to adopting new logics are reduced. Second,a firm adopts new logics faster when the tenor ofassociative rhetoric is more positive than negative,because actors are molded by the publicly ex-pressed approvals and are likely to perceive a pos-itive association to be more plausible. In contrast, a

firm delays the adoption of new logics when therelative proportion of the tenor of associative rhet-oric is negative (versus positive), because actors aremolded by the publicly expressed disapprovals andare likely to perceive a negative association as plau-sible. Third, a firm adopts new logics faster whenthe relative proportion of associative rhetoric stemsfrom firms (versus journalists/analysts); the actorperceives the source firms as having grounded ex-pertise and as more similar to itself and is thusmore likely to find the association persuasive andeffective. Finally, a firm adopts new logics fasterwhen the relative proportion of the associativerhetoric is focused on broad trends and generalprinciples (versus specific cases), because the asso-ciation represents an advanced stage of learningthat the media have formulated for ready consump-tion. A firm more easily accepts associative rhetoricbased on generalization than associative rhetoricbased on specific cases.

Our findings can be interpreted as evidence show-ing that when new logics are rhetorically associatedwith firms’ existing logics, those firms adopt the newlogics and independently perceive them as appropri-ate, desirable, and interpretable. Specifically, a newlogic and its association with existing logics becomeactivated whenever the rhetorically associated logicsare activated through the process of cognitive elabo-ration (Childers & Houston, 1984; Loftus, 1974; Mey-ers-Levy, 1991). Because firms that have alreadyadopted the rhetorically associated logics activatethose logics in their daily operations, and because ofthe rhetorical association of their existing logics withthe not-yet-legitimate new logic, the association withnew logic is activated frequently for such firms. Re-peated invocations of the association of new logicswith those already legitimated give firms familiaritywith the new logics, which enables them to cogni-tively accept and adopt them. Once firms cognitivelyaccept and adopt a new logic, it is independentlyseen as appropriate, desirable, and interpretable(DiMaggio & Powell, 1991; Geertz, 1973; Meyer &Rowan, 1991; Suchman, 1995). This conceptualmodel complements earlier findings by Rao (2004)and Hargadon and Douglas (2001) and shows howfirms use media rhetoric in creating associations andcognitive elaborations.

Theoretical Implications

Our work extends the research on actor-centeredinstitutional theory (Aguilera & Jackson, 2003; Law-rence & Suddaby, 2006; Sanders & Tuschke, 2007;Scharpf, 1997). We contribute to this stream of re-search by showing how firms assess the fit betweennew, not-yet-legitimated logics and existing logics. A

2008 1183Lee and Paruchuri

new, not-yet-legitimated logic fits existing logics ifthe new logic is consistent with and does not contra-dict those existing logics. Earlier research in institu-tional theory relies on an assumption that firms as-sess this fit through the actions of dominant or high-status actors, or through the frequency of adoption byother actors. For example, firms imitate the entryactions of high-status firms because it is assumed thatthe entry of high-status firms is legitimate and doesnot violate existing institutional logics (Haveman,1993). In contrast, in a recent study taking an actor-centered institutional approach, Sanders and Tus-chke (2007) examined the diffusion of practices froman environment in which a practice was legitimatedto another environment in which the practice wascontested. They found that firms that had a presencein the environment in which the practice was legiti-mate were pioneers in adopting the practice where itwas contested. However, Sanders and Tuschke didnot explicitly address the issue of firms’ assessmentof the fit of new practices with their existing prac-tices, as we do in this article. Our focus on an explic-itly relational concept—associative rhetoric—is anew approach to understanding how firms assess thefit between their existing logics and new, not-yet-legitimated logics. More interestingly, we shed lighton the effectiveness of different attributes of associa-tive rhetoric in firms’ assessment of this fit.

Our study complements existing institutional re-search about actions to avoid. Meyer and Rowan(1977) pointed out that firms may undertake non-legitimated actions through their “hidden struc-tures,” which are complemented by “ceremonialstructures” that adhere to institutions. Other re-search has shown the role of regulations in delay-ing the adoption of contested actions (Sanders &Tuschke, 2007). Our research, by contrast, has fo-cused on how the tenor of associative rhetoric af-fects the process of legitimation. We found thatnegative associative rhetoric creates cognitive mod-els of “what not to do,” or which actions to avoid.Firms whose existing logics are negatively associ-ated with the logics of certain emerging marketswould refrain from entering those markets.

Our study also contributes toward a better under-standing of market entry decisions. Earlier studieshave examined market entry through various lenses,including entry barriers, firm resources and capabil-ities, network resources, and mimetic institutionalprocesses (Caves & Porter, 1977; Haunschild & Miner,1997; Haveman, 1993; Lee, 2007; Nelson & Winter,1982; Penrose, 1959; Scott, 2000; Silverman, 1999).Our study complements these earlier studies by de-veloping a cognition-based and actor-centered insti-tutional explanation. This new perspective is impor-tant particularly for decisions regarding entry into

emerging product-markets, because decision makersoften have little information about these highly un-certain markets. Although a recent study by Lee(2007) showed that network resources derived fromstrategic alliances reduce uncertainty about entry intoemerging markets, our study builds on actor-centeredinstitutional theory to show the role of media andassociative rhetoric in reducing market entry uncer-tainty. Using reasoning that is similar to real-optionsreasoning (Bowman & Hurry, 1993; McGrath, 1997),which suggests that firms make decisions to “go” or“abandon” only after some uncertainty is reduced,we show that firms enter new markets as uncertaintyabout the logics associated with those markets is re-duced by the use of four attributes of associative rhet-oric in the media.

This article contributes to media studies as well(Abrahamson, 1997; Deephouse, 2000; Pollock &Rindova, 2003). Earlier research looking at the role ofmedia in the process of legitimation has focused ondifferent types of rhetorical strategies; this articlecomplements such studies by tapping a different setof attributes and examining their effectiveness in le-gitimating new logics. One attribute of interest wasthe source of associative rhetoric. Prior research hashighlighted what financial analysts and journalistssay to the media about certain companies (Gamson,Croteau, Hoynes, & Sasson, 1992; Pollock & Rindova,2003; Rao et al., 2001). Their assumption has beenthat media rhetoric stemming from financial analystsand journalists has legitimacy. Our research contrib-utes to this stream by comparing the legitimizingpower of discourse stemming from different sources,such as firms, journalists, and analysts, and we findthat the rhetoric stemming from firms has muchhigher legitimizing power than that stemming fromjournalists/analysts. This finding expands under-standing of the role and origin of media discourse inlegitimization processes.

Limitations and Future Research Directions

Although our study adds and complements sev-eral streams of organizational research, it does havesome limitations, which could form avenues forfuture research. First, we considered only estab-lished and reputable journals, as is common inmedia studies. This approach helped us test ourpredictions neatly, yet we ignored nascent journalsthat emerge as new industries emerge. Future stud-ies should examine the coevolution between mediaand industries. Second, journalists and analystscould be biased in their reporting by owning stocksof the firms that they cover. However, we did notcontrol for incentives that could lead journalists/

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analysts to report on some firms more favorably.5

Third, given our large sample, we did not directlycollect data on the cognitive thinking of managers.Future qualitative, in-depth case studies could beused to examine how managers’ thinking changesas media rhetoric changes. Fourth, we examinedonly one type of action—market entry. Future stud-ies could analyze the relevance of associative rhet-oric to other types of firm actions. Finally, futurestudies should examine whether taking actions byfollowing widely circulated associative rhetoricyields advantages. For example, the stock marketreaction to a firm’s entry into newly emerging prod-uct-markets is likely to be more favorable for themarkets that have achieved more cognitive legiti-macy. Despite these limitations, this article makesan important contribution to understanding of ac-tor-centered institutional theory, media studies,and market entry research.

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Gwendolyn K. Lee (glee@alum.mit.edu) is an assistantprofessor at the University of Florida’s Hough GraduateSchool of Business and Warrington College of BusinessAdministration. She received her Ph.D. in business ad-ministration from the University of California, Berkeley.Her research focuses on theory and policy developmentin innovation and industry evolution.

Srikanth Paruchuri (paruchur@ufl.edu) is an assistantprofessor at the University of Florida’s Hough GraduateSchool of Business and Warrington College of BusinessAdministration. He received his Ph.D. from ColumbiaUniversity. His research explores technology networkswithin and across firms, and adoption of new institu-tional logics.

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