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Do informal institutions affect entrepreneurial intentions?

Nataliia Ostapenko (Tartu Ulikool, Tartu, Estonia)

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Article publication date: 16 June 2017

Issue publication date: 11 August 2017

Abstract

Purpose

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/approach

The 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.

Findings

Informal 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/implications

Research 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 implications

Policymakers should consider that institutional settings affect people in a different manner when developing their policies.

Originality/value

The 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.

Keywords

Acknowledgements

The author would like to thank the Estonian Research Council for funding this research through grants IUT20-49. Additionally, the author would like to thank to two anonymous referees for useful comments and recommendations. The author also would like to thank Darin Hargis for helping with a proofreading.

Citation

Ostapenko, N. (2017), "Do informal institutions affect entrepreneurial intentions?", Journal of Small Business and Enterprise Development, Vol. 24 No. 3, pp. 446-467. https://doi.org/10.1108/JSBED-12-2016-0192

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited