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Do informal institutions affect entrepreneurial intentions?

Do informal institutions affect entrepreneurial intentions? The purpose of this paper is to empirically define the ways in which informal institutions influence entrepreneurial intentions. It tests the statement that informal institutions can have an impact on people’s decisions, directly and indirectly, by affecting their perceptions of the external world.Design/methodology/approachThe paper develops a theoretical model of the probability of starting a business by a potential entrepreneur. The model takes into account a comparison of current wages and future profits. The empirical analysis is based on European social survey data at the individual level. Three-stage least squares regression helps to overcome the endogeneity problem since perceptions of government actions are individual specific.FindingsInformal institutions can affect expectations about future activities in a person’s lifetime utility maximisation problem. The paper empirically concludes that these institutions are connected with a person’s satisfaction with government and can indirectly affect the probability to be self-employed.Research limitations/implicationsResearch limitations are related to employing proxies for informal institutions, using only the “satisfaction with government” as a perceptions indicator, and cross-sectional data while defining the causal effect.Practical implicationsPolicymakers should consider that institutional settings affect people in a different manner when developing their policies.Originality/valueThe paper makes a novel contribution by analysing the effect of informal institutions on the probability to start a business by using both theoretical arguments and empirical tests. Building upon insights from a broader informal institutions’ effect on entrepreneurial intentions, this paper is the first to study a linkage between informal institutions and their indirect effect on people’s profit expectations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Small Business and Enterprise Development Emerald Publishing

Do informal institutions affect entrepreneurial intentions?

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References (67)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1462-6004
DOI
10.1108/jsbed-12-2016-0192
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to empirically define the ways in which informal institutions influence entrepreneurial intentions. It tests the statement that informal institutions can have an impact on people’s decisions, directly and indirectly, by affecting their perceptions of the external world.Design/methodology/approachThe paper develops a theoretical model of the probability of starting a business by a potential entrepreneur. The model takes into account a comparison of current wages and future profits. The empirical analysis is based on European social survey data at the individual level. Three-stage least squares regression helps to overcome the endogeneity problem since perceptions of government actions are individual specific.FindingsInformal institutions can affect expectations about future activities in a person’s lifetime utility maximisation problem. The paper empirically concludes that these institutions are connected with a person’s satisfaction with government and can indirectly affect the probability to be self-employed.Research limitations/implicationsResearch limitations are related to employing proxies for informal institutions, using only the “satisfaction with government” as a perceptions indicator, and cross-sectional data while defining the causal effect.Practical implicationsPolicymakers should consider that institutional settings affect people in a different manner when developing their policies.Originality/valueThe paper makes a novel contribution by analysing the effect of informal institutions on the probability to start a business by using both theoretical arguments and empirical tests. Building upon insights from a broader informal institutions’ effect on entrepreneurial intentions, this paper is the first to study a linkage between informal institutions and their indirect effect on people’s profit expectations.

Journal

Journal of Small Business and Enterprise DevelopmentEmerald Publishing

Published: Aug 11, 2017

Keywords: Intentions; Entrepreneurs; Informal institutions; 3SLS; Indirect effect; D02; O3; L26

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