Categorization, identity construction, and the survival of entrepreneurial ventures

This research explores the cognitive underpinning of the identity construction of entrepreneurial ventures pursuing a novel organizational form. Emphasizing the importance of news media as market intermediaries, it examines how audiences’ sensemaking about the identity of entrepreneurial ventures are affected by media reports about the relationships that position those firms in cognitive networks and make them categorically meaningful. I suggest that firms obtain survival benefits from a prominent position that signals their membership in a collective entity and helps establish their market identity in audiences. I situate my analysis in the South Korean population of semiconductor integrated-circuit(IC) design firms, where I trace the position of each firm in cognitive relational networks and its effect on the firm’s survival between 1994 and 2010. Event history models show that high levels of cognitive network prominence tend to lower firm failure rates, but the magnitude of this impact declines with a firm’s age, size, and patent performance which are indicative of the ambiguity about the firm’s identity. They also show that the impact of cognitive prominence declines as the population becomes legitimated. Overall, I show that media coverage for cognitive networks constitutes a critical condition fostering collective sensemaking about organizations doing something new.

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