Identities as lenses: How organizational identity affects audiences' evaluation of organizational performance

This study calls into question the completeness of the argument that economic actors who fail to conform to certain identity-based logics such as the categorical structure of markets garner less attention and perform poorly, beginning with the observation that some nonconforming actors seem to elicit considerable attention and thrive. By reconceptualizing organizational identity as not just a signal of organizational legitimacy but also a lens used by evaluating audiences to make sense of emerging information, I explore the micro, decision-making foundations on which both conformist and nonconformist organizations may come to be favored. Analyzing the association between organizational conformity and return on investment and capital flows in the global hedge fund industry, 1994-2008, I find that investors allocate capital more readily to nonconforming hedge funds following periods of short-term positive performance. Contrary to prediction, nonconforming funds are also less severely penalized for recent poor performance. Both "amplification" and "buffering" effects persist for funds with nonconformist identities despite steady-state normative pressure toward conformity. I explore the asymmetry of this outcome, and what it means for theories related to organizational identity and legitimacy, in the discussion section.