This research was supported by National Science Foundation grant SES-9008493. Computations supporting it were conducted using the Cornell National Supercomputer Facility, a resource of the Cornell Theory Center, which is funded in part by the National Science Foundation, New York State, and the IBM Corporation and members of the Center's Corporate Research Institute. We appreciate the technical assistance and critical comments of David Barron and the suggestions of Glenn Carroll, John Freeman, Susan Olzak, and three referees. Please direct correspondence to Michael Hannan, Department of Sociology, Uris Hall, Cornell University, Ithaca, NY 14853. This paper addresses two criticisms of the ecological theory of density-dependent legitimation and competition: (1) that it does not apply to business organizations for whom legitimation is not problematic, and (2) that it applies only when many small and powerless organizations engage in competition free of external regulation. We address these issues by applying the theory to founding rates in populations of Manhattan banks and American insurance companies, which are composed of prototypical business organizations and which have been subject to extensive government regulation. For each population, the first-order effect of density is positive and significant and the second-order effect is negative and significant, implying an inverted-U shape relation between density and founding rates, in agreement with the theory. The results support the view that the theory applies more broadly than has been acknowledged.-