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Is starting and staying unregistered longer beneficial for firms? The moderating role of institutional quality

Bisrat A. Misganaw (NEOMA Business School, Mont-Saint-Aignan, France)
Dawit Z. Assefa (NEOMA Business School, Mont-Saint-Aignan, France)
Ana Colovic (NEOMA Business School, Mont-Saint-Aignan, France)

International Journal of Entrepreneurial Behavior & Research

ISSN: 1355-2554

Article publication date: 29 November 2022

Issue publication date: 9 February 2023

42

Abstract

Purpose

This study examines the impact of initial informality years on subsequent firm performance and the moderating effect of institutional quality on this relationship.

Design/methodology/approach

The study draws on the World Bank Enterprises Survey (WBES) data covering 116 developing economies over the 2006–2018 period. The study also utilizes data from the Heritage Foundation, the World Bank World Development Indicators (WDI) and the Fraser Institute Economic Freedom Database.

Findings

The study demonstrates that firms that start operation without formal registration perform better than firms that start operation formally. However, contrary to prior studies that show a linear relationship between time spent unregistered and subsequent firm performance, this study finds a non-monotonic relationship between the two – taking an inverted–U shape form. The study further shows that institutional quality at country level moderates this relationship such that firms operating in countries marked by poorly functioning formal institutions benefit from remaining unregistered longer.

Originality/value

This study is the first to show a non-monotonic relationship between the time firms spend without registration and their subsequent performance. By doing so, it reconciles the contradicting findings in the extant literature regarding the relationship between the two variables. It also identifies one important boundary condition – institutional quality – that moderates this relationship.

Keywords

Citation

Misganaw, B.A., Assefa, D.Z. and Colovic, A. (2023), "Is starting and staying unregistered longer beneficial for firms? The moderating role of institutional quality", International Journal of Entrepreneurial Behavior & Research, Vol. 29 No. 2, pp. 433-458. https://doi.org/10.1108/IJEBR-07-2022-0582

Publisher

:

Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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