This study investigates legitimacy loss through corporate scandals in the social lending industry, an emerging financial innovation. Employing a single-case study methodology complemented by a content analysis of media reports, this research reveals how news coverage precipitated a negative societal perception of the entire social lending sector. This study makes two major contributions to existing literature. First, it extends the scope of corporate scandal research in Japan beyond focal organizations to encompass industry-wide repercussions. Second, it diverges from conventional innovation studies that typically examine successful enterprises, focusing instead on nascent industries, to explore the interplay between legitimacy acquisition and scandals during its formative stages. This approach provides insights into the challenges faced by innovative sectors in establishing and maintaining legitimacy amid potential misconduct.
