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How does informal entrepreneurship influence the performance of small formal firms? A cross-country institutional perspective

Author

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  • Panagiotis Piperopoulos
  • Mario Kafouros
  • Murod Aliyev
  • Emma Yan Liu
  • Alan Au

Abstract

We advance understanding of how competition from informal entrepreneurial firms influences the performance of small formal (registered) firms. We also investigate the role of tax and law related institutions in shaping differently the performance outcomes of the competition between informal and formal firms. Empirical evidence from the analysis of 11,988 observations in 110 emerging countries indicates that, on average, informal firms affect adversely the performance of small formal firms. These negative effects however are stronger in institutional environments with burdensome courts of law but tend to be weaker in environments with burdensome tax regulations. Our analysis extends the rational exit perspective of informality and shows how competition from informal firms affects the performance of small formal firms. It also specifies how contingencies associated with law- and tax-specific institutions across emerging countries influence this relationship.

Suggested Citation

  • Panagiotis Piperopoulos & Mario Kafouros & Murod Aliyev & Emma Yan Liu & Alan Au, 2021. "How does informal entrepreneurship influence the performance of small formal firms? A cross-country institutional perspective," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 33(7-8), pages 668-687, August.
    • Handle: RePEc:taf:entreg:v:33:y:2021:i:7-8:p:668-687
    DOI: 10.1080/08985626.2021.1887371
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    Cited by:

    1. Muhammad Farhan Jalil & Azlan Bin Ali & Zeeshan Ahmed, 2022. "Microfinance services and MSE growth in Pakistan: The mediating perspective of social and psychological capital," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 18(1), pages 93-130.

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