Institutional framework and entrepreneurial failure

Abstract

Purpose

The purpose of this paper is to analyse the influence of the institutional environment on entrepreneurial failure of certain characteristics, both formal (regulatory complexity and tax pressure) and informal (social capital and fear of failure).

Design/methodology/approach

The authors use data drawn from a panel of 37 countries over a period of nine years (2006-2014).

Findings

Results show that the greater the regulatory complexity, the higher the rate of entrepreneurial failure; also that the higher the country’s stock of social capital, the lower the rate of entrepreneurial failure. Finally, the greater the tax pressure, the lower the rate of business failure.

Research limitations/implications

Among the limitations of this paper is the difficulty of directly measuring the variables it analyses, making it necessary to use proxies.

Practical implications

This study has important practical implications for policymakers. First, the study provides important insights on how regulatory complexity positively affects entrepreneurial failure. In other words, the study represents a response to the call for the development of a better regulatory environment since this plays a significant role in entrepreneurial failure. Second, regarding tax pressure, the authors found that the greater the tax pressure, the lower the rate of entrepreneurial failure. In this respect, entrepreneurs, academics and policymakers should be aware of this result. Finally, this study also demonstrates the important role of social capital in preventing entrepreneurial failure.

Originality/value

In line with the findings, this study provides proof of how the institutional framework can have an influence on entrepreneurial failure.

Citation

García-Ramos, C., Gonzalez-Alvarez, N. and Nieto, M. (2017), "Institutional framework and entrepreneurial failure", Journal of Small Business and Enterprise Development, Vol. 24 No. 4, pp. 716-732. https://doi.org/10.1108/JSBED-10-2016-0153