Too Much of a Good Thing? The Dual Effect of Public Sponsorship on Organizational Performance

Existing research provides contradictory insights regarding the effect of public sponsorship on the market performance of organizations. We develop the nascent theory on sponsorship by highlighting the dual and contingent nature of the relationship between public sponsorship and market performance. By arguing that sponsorship differentially affects resource accumulation and allocation mechanisms, we suggest two opposing firm-level effects, leading to an inverted U-shaped relationship between the amount of public sponsorship received and the market performance of sponsored organizations. This nonlinear relationship, we argue, is moderated by the breadth, depth, and focus of the focal organization's resource accumulation and allocation patterns. While horizontal scope (i.e., increased breadth) and an externally oriented resource profile (i.e., reduced depth) strengthen the relationship, market orientation (i.e., increased focus) attenuates it. We test and find strong support for our hypotheses using population data on French film production firms from 1998 to 2008. Our work highlights the performance trade-offs associated with public sponsorship, and carries important managerial and policy implications.