The influence of formal institutions on the relationship between entrepreneurial readiness and entrepreneurial behaviour: A cross-country analysis

Abstract

Purpose

The purpose of this paper is to use a unique set of measures from Holmes et al. (2013) to clarify the relationship between entrepreneurial readiness and entrepreneurial behaviours across countries and determine whether formal institutions moderate this relationship.

Design/methodology/approach

This paper uses data collected by the Global Entrepreneurship Monitor, the Index of Economic Freedom, Political Risk Services, and the Freedom House and Political Constraint Index to test a theoretical model. A multilevel analysis is performed based on set of 377,356 observations from 51 countries spanning eight years (2001-2008).

Findings

The results suggest that entrepreneurial readiness has a strong relationship with entrepreneurial behaviour (as measured by entrepreneurial entry and opportunity-based entrepreneurship) and that this relationship strengthens with increases in political democracy (PD), government regulations (GR), financial capital availability (FCA) and market liquidity (ML).

Research limitations/implications

The study is based on Holmes et al.’s (2013) institutions that are most important for society, uses satisfactory sample size and multi-level modelling. However, many more institutional conditions that remain to be considered might affect entrepreneurial activities.

Practical implications

For policy-makers, the results show that PD, GR, FCA and ML correlate favourably with entrepreneurial behaviour when individuals have a high level of entrepreneurial readiness. Policy-makers should introduce policies that provide a secure environment to individuals to start their own ventures.

Originality/value

The current study is among the first to examine the three dimensions of formal institutions—political, regulatory, and economic institutions—in a single study. Using the three dimensions, the study explains theoretically and examines empirically the effect of individual-level entrepreneurial readiness on entrepreneurial behaviour.

Citation

Raza, A., Muffatto, M. and Saeed, S. (2019), "The influence of formal institutions on the relationship between entrepreneurial readiness and entrepreneurial behaviour: A cross-country analysis", Journal of Small Business and Enterprise Development, Vol. 26 No. 1, pp. 133-157. https://doi.org/10.1108/JSBED-01-2018-0014