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This paper aims to examine the factors associated with a household business entrepreneur’s decisions to formalise the firm at a multidimensions level.
Abstract
Purpose
This paper aims to examine the factors associated with a household business entrepreneur’s decisions to formalise the firm at a multidimensions level.
Design/methodology/approach
The data set is a panel of 2,336 SMEs and household businesses from Vietnamese SME surveys during the 2005–2015 period.
Findings
This study elucidates how firm-level resources, entrepreneur characteristics and costs of doing business influence an entrepreneur’s decision to enter, the speed and the degree of formality.
Originality/value
This study provides insight into the origins of an entrepreneur’s decisions to the multidimensions of business formality through the lenses of the resource-based view, entrepreneurship and institution theories.
Details
Keywords
Brenda Silupu, Belen Usero and Ángeles Montoro-Sánchez
The formalization of a company is a process that requires compliance with standards established by government institutions. In developing countries, many businesses start this…
Abstract
Purpose
The formalization of a company is a process that requires compliance with standards established by government institutions. In developing countries, many businesses start this process, but do not finish it, with different levels of formality. The objective of this research is to analyze how the perception of entrepreneurs about bureaucratic procedures and the sector determine the level of formality regarding an established company that has taken the first step to formality.
Design/methodology/approach
The National Survey of Micro and Small Enterprises (MSEs) is used with a sample of 4,619 Peruvian MSEs with more than three years of operation within the manufacturing and services sector. The data are analyzed with the ordered logistic regression technique.
Findings
The results show that the more favorable the perception of entrepreneurs about the ease of bureaucratic procedures, the higher the level of business formality; and companies in the manufacturing sector are less formal than those in the services sector. In addition, the perceptions of entrepreneurs positively moderate the level of formality in the case of companies in the manufacturing sector.
Originality/value
Levels of formality in established companies are analyzed, defined by the compliance degree with the requirements to be a formal company. The literature on business informality in emerging countries is expanded, particularly in Latin America, incorporating the analysis of the formalization process.
Propósito
La formalización de una empresa es un proceso que exige el cumplimiento de normas establecidas por las instituciones de gobierno. En países en desarrollo, muchas empresas empiezan este proceso, pero no lo terminan, existiendo diferentes niveles de formalidad. El objetivo de esta investigación es analizar cómo la percepción de los empresarios sobre los trámites burocráticos y el sector determina el nivel de formalidad de una empresa establecida que ha dado el primer paso hacia la formalidad.
Diseño/metodología/enfoque
Se utiliza la Encuesta Nacional de la Micro y Pequeña Empresa con una muestra de 4.619 micro y pequeñas empresas peruanas de los sectores de manufactura y servicios con más de tres años de operación. Los datos son analizados con la técnica de regresión logística ordenada.
Hallazgos
Los resultados muestran que cuanto más favorable es la percepción de los empresarios sobre la facilidad de los trámites burocráticos mayor es el nivel de formalidad empresarial, y las empresas del sector manufactura son menos formales que las del sector servicios. Además, las percepciones de los empresarios moderan positivamente en el nivel de formalidad para el caso de las empresas del sector manufactura.
Originalidad/valor
Se analizan niveles de formalidad en empresas establecidas, definidas por el grado de cumplimiento de las exigencias para ser una empresa formal. Se amplía la literatura sobre informalidad empresarial en países emergentes, particularmente en América Latina, incorporando el análisis del proceso de formalización.
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Francieli Tonet Maciel and Ana Maria Hermeto C. Oliveira
The purpose of this paper is to discuss recent dynamics of the Brazilian labour market, by analysing occupational mobility patterns, specially the transitions between formal and…
Abstract
Purpose
The purpose of this paper is to discuss recent dynamics of the Brazilian labour market, by analysing occupational mobility patterns, specially the transitions between formal and informal labour, and verify the earnings mobility resulting from these transitions, separately by gender.
Design/methodology/approach
The changes in the mobility patterns are analysed by performing an estimation of the transition probabilities between different occupational status between 2002 and 2012, using a multinomial logit model and the microdata from the Monthly Employment Survey (PME). The earnings mobility is analysed by using quantile regressions.
Findings
The results indicate a high degree of mobility from unemployment to formal employment in the period but suggest the persistence of mobility patterns. Women are better off in the period, but only among individuals with better attributes. The earnings mobility results, for women and men, suggest an increase in valuation of the formal labour relatively to informality (informal salaried employment and self-employment), especially at the bottom of the earnings distribution.
Originality/value
The paper contributes to a better understanding of recent changes in occupational mobility patterns between formal and informal labour and the earnings mobility underlying these patterns, accounting for the differences along the earnings distribution and gender issues. That is, it allows identify which groups of workers benefited more from the formalisation process to infer about trends in formal–informal dynamics over the period and discuss the challenges in conducting policies to promote inclusive and quality employment.
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Uchenna Uzo, Johanna Mair and Adedeji Adewusi
The purpose of this study is to explain how and why firms configure copyright practices when confronted with state-sanctioned laws and informal customs projected by local ethnic…
Abstract
Purpose
The purpose of this study is to explain how and why firms configure copyright practices when confronted with state-sanctioned laws and informal customs projected by local ethnic or religious communities.
Design/methodology/approach
A multi-case inductive study of four film-producing organizations within the Nigerian film industry (i.e. Nollywood) was conducted. Specifically considered were firms that started their operations around the same time with similar founding conditions, experiences, resources and technical competencies. Field observations and multiple rounds of in-depth interviews were conducted to achieve the research objectives.
Findings
The study found that firms adopted dominant or hybrid configurations when interacting with informality and formality. Dominant configurations represent the exclusive adoption of informal copyright practices while hybrid configurations refer to the blended use of informal and formal copyright practices. The second set of findings revealed that each firm’s strategic intent affected the type of interactional configuration that unfolded in the firm. Specifically, firms with social intents tended to adopt dominant configurations, whereas firms with socio-economic intents tended to adopt hybrid configurations.
Practical implications
The study implies that firms may profit from strategically focusing on when and in what circumstances to adopt informality. Strategic intents that blend social and economic rationales may secure more positive interactive outcomes from internal and external stakeholders promoting formality and informality.
Social implications
This study highlights the fact that firms embedded in local religious and ethnic communities use organizational practices to solve social and institutional problems of their members. The copyright practices of these organizations encourage apprenticeship, youth empowerment and entrepreneurship in Nigeria.
Originality/value
To the best of the authors’ knowledge, this is the first study that goes beyond macro-level analysis to investigate the interactional dynamics between formality and informality at the firm, community, and state levels. The study is also first of its kind to use copyright practices as an analytical lens to explore the interaction between informality and formality.
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Colin C. Williams and Sara Nadin
Providing support to off‐the‐books business start‐ups to help them make the transition to legitimacy could be a novel and effective method of creating new legitimate business…
Abstract
Purpose
Providing support to off‐the‐books business start‐ups to help them make the transition to legitimacy could be a novel and effective method of creating new legitimate business ventures. The purpose of this paper is to advance understanding of why some business start‐ups operate off‐the‐books so as to explore how public policy might facilitate their transition towards formalisation.
Design/methodology/approach
To do this, a survey is reported of 120 business start‐ups in West Cornwall, UK, of which 48 were operating wholly or partially off‐the‐books.
Findings
This study inductively reveals that entrepreneurs' rationales for trading off‐the‐books and the consequent barriers to formalisation differ according to whether the business start‐up is wholly off‐the‐books, a registered business start‐up conducting a portion of their trade off‐the‐books with no intention of further formalising, or a registered business start‐up in transition to legitimacy. The outcome is that policy measures to facilitate formalisation need to be tailored to tackle the varying reasons for each type of business start‐up trading off‐the‐books.
Research limitations/implications
Given the limited data, more extensive research across varying populations is required to evaluate the wider validity of the reasons for off‐the‐books trading of these different types of business start‐up.
Practical implications
The paper reveals that the support required to help entrepreneurs to make the transition to legitimacy needs to vary according to the degree to which their venture presently operates off‐the‐books and whether they display any intention to move towards formalisation.
Originality/value
This is the first paper to identify the reasons business start‐ups trade off‐the‐books and the different resultant policy measures required to support their formalisation.
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Brenda Silupu and Sergio Reyes
In developing countries, women microentrepreneurs are characterized as being informal, creating a challenge for the sustainability of their businesses. The purpose of this study…
Abstract
Purpose
In developing countries, women microentrepreneurs are characterized as being informal, creating a challenge for the sustainability of their businesses. The purpose of this study is to analyze different businesses that adopt this form of operation arguing that formality is unnecessary because they are legitimate businesses (institutional reason). In addition, the role of gender in business management was incorporated, and the consistency of the results was validated in the context of COVID-19.
Design/methodology/approach
This study used data from the National Household Survey of Peru for the development of a compared analysis between the period 2018–2019 (pre-COVID-19), made up of a sample of 14,077 observations, and the period 2020–2021 (COVID-19), with 7,922 observations. The unit of analysis was the informal microenterprise with more than three years of operation, and the data was analyzed using a logistic model.
Findings
The probability of adopting informality for institutional reasons is more significant in the case of women in contrast to the men when it is a business belonging to the commerce sector and operating in a dwelling with basic services, while this probability decreases if the firm does not have a fixed location. These results are consistent in pre-COVID-19 and COVID-19 periods.
Originality/value
The purpose of this research was to contribute to closing gaps in the generation of evidence that helps to understand the behavior of informal microentrepreneurs in developing countries, allowing a better approach to this problem for the design and implementation of suitable public policies. All this will contribute to the accomplishment of the Sustainable Development Goals.
Propósito
En países en desarrollo, las mujeres microempresarias se caracterizan por ser informales generando un desafío para la sostenibilidad de sus negocios. La presente investigación analizó diferentes negocios que adoptan esta forma de operación con el argumento de que la formalidad no es necesaria porque son negocios legítimos (motivo institucional); además, se incorporó el rol del género en la gestión del negocio, y se validó la consistencia de los resultados en un contexto de COVID-19.
Diseño/metodología/enfoque
Se utilizaron datos de la Encuesta Nacional de Hogares de Perú para el desarrollo de un análisis comparado entre el período 2018–2019 (pre-COVID-19), compuesto por una muestra de 14.077 observaciones, y el período 2020–2021 (COVID-19), con 7.922 observaciones. La unidad de análisis es la microempresa informal con más de tres años de operación y los datos son analizados mediante un modelo logístico.
Hallazgos
Resulta mayor la probabilidad de adoptar la informalidad por motivos institucionales en el caso de las propietarias en contraste con los propietarios, cuando se trata de un negocio perteneciente al sector comercio y que funciona en una vivienda con servicios básicos, mientras que disminuye esta probabilidad si el negocio no posee un local fijo. Estos resultados son consistentes en tiempos de pre-COVID-19 y COVID-19.
Originalidad/valor
La investigación tiene por fin contribuir al cierre de brechas en la generación de evidencia que ayude a comprender el comportamiento de las mujeres microempresarias informales en países en desarrollo, permitiendo una mayor aproximación a esta problemática para el diseño e implementación de políticas públicas adecuadas. Todo esto contribuirá con los Objetivos de Desarrollo Sostenible.
Propósito
Nos países em desenvolvimento, as mulheres microempreendedoras caracterizam-se por serem informais, criando um desafio para a sustentabilidade dos seus negócios. A presente investigação analisou diferentes negócios que adotam essa forma de operação com o argumento de que a formalidade não é necessária por serem negócios legítimos (razão institucional); além disso, foi incorporado o papel do gênero na gestão empresarial e se validou a consistência dos resultados num contexto de COVID-19.
Desenho/metodologia/abordagem
Se utilizaram dados da Pesquisa Nacional de Domicílios do Peru para desenvolver uma análise comparativa entre o período 2018–2019 (pré-COVID-19), composto por uma amostra de 14.077 observações, e o período 2020–2021 (COVID-19), com 7.922 observações. A unidade de análise é a microempresa informal com mais de três anos de operação e os dados são analisados através de um modelo logístico.
Descobertas
Resulta maior a probabilidade de adoção da informalidade por motivos institucionais no caso das proprietárias em contraste com os proprietários, quando se trata de um negócio pertencente ao setor do comércio e que funciona numa casa com serviços básicos, enquanto esta probabilidade diminui se o negócio não tem local fixo. Estes resultados são consistentes em tempos pré-COVID-19 e COVID-19.
Originalidade/valor
A pesquisa tem como objetivo contribuir no fechamento de brechas na geração de evidências que ajude a compreender o comportamento dos microempreendedores informais nos países em desenvolvimento, permitindo uma melhor abordagem desta problemática para o desenho e implementação de políticas públicas adequadas. Tudo isto contribuirá para o cumprimento dos Objetivos de Desenvolvimento Sustentável.
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The purpose of this paper is to examine the intersection of formality, informality, structures of power, gender, and social norms in the mobile telecommunication industry in…
Abstract
Purpose
The purpose of this paper is to examine the intersection of formality, informality, structures of power, gender, and social norms in the mobile telecommunication industry in Cameroon, and to investigate the reasons for the over-representation of informal self-employed women at the base of the mobile telecommunication industry in the country.
Design/methodology/approach
This is a qualitative study using interviews and observations.
Findings
Cameroon’s mobile telecommunication industry is a “spaghetti bowl” where formality, informality, gender, structures of power, and social norms are intertwined. In Cameroon’s mobile telecommunication industry, there is no static division between formality and informality, rather, there is a connection between formality and informality to ensure the unity and totality of the airtime credit distribution system. Self-employment in the mobile telecommunication industry is gendered.
Originality/value
Analysing the intersection of gender, class, formality, informality, social norms, and structures of power in the functioning of the mobile telecommunication industry in the Cameroon is original.
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This study aims to investigate the factors that affect the likelihood of formalizing informal sector activities in 13 Sub-Saharan African countries, using World Bank enterprise…
Abstract
Purpose
This study aims to investigate the factors that affect the likelihood of formalizing informal sector activities in 13 Sub-Saharan African countries, using World Bank enterprise survey data collected between the periods 2009 and 2018. Notwithstanding the great contribution of the informal economy in Africa, developing countries may stand to gain more if they make inroads in formalizing the informal sector.
Design/methodology/approach
Since the dependent variable is binary taking the value of one if the firm is willing to formalize and zero otherwise, the study will employ a discrete choice probit model.
Findings
Results inter alia show that firms that are more likely to formalize are young, owned by individuals with high levels of education and, have registered before. Governments should therefore target firms that are young and provide them with information about the benefits of registration, and if these firms are owned by experienced and educated individuals, the likelihood for them to register would be high.
Research limitations/implications
The study uses cross sectional data and therefore cannot capture time variant factors affecting the probability to register and also cannot correct effectively for endogeneity.
Practical implications
Governments should therefore target firms that are young and provide them with as much information as possible about the benefits of registration, and if these firms are owned by experienced and educated individuals, the likelihood to convince them to register would be high. They should also reduce the cost of registration so as to improve net benefits in line with the rational exit view.
Social implications
Formalizing informal activities will help improve the performance of these firms, reduce vulnerable employment as well as crime, poverty and inequality. Providing decent operating and working conditions to informal players will reduce social and political unrest.
Originality/value
The African continent is home to many informal firms accounting for roughly 55% of economic activity with 90% of workers eking out a living in a sector that does not respect worker rights, provide decent working conditions and where changes in growth have done little to reduce its size. Regulatory reforms have also been implemented resulting in the number of start-up registration procedures falling from 11 in 2003 to seven in 2019. The uniqueness of Sub Saharan Africa in terms of entrepreneurial culture, political, institutional and economic conditions as well as lack of consensus in the extant empirical literature make this study pertinent.
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Enterprises in developed and developing world environments often begin life in the informal sector operating outside the purview of government oversight. Sectoral firm change…
Abstract
Purpose
Enterprises in developed and developing world environments often begin life in the informal sector operating outside the purview of government oversight. Sectoral firm change, however, from the informal to the formal sector is not well studied. The purpose of this paper is to answer the following research question: “What firm-level markers help explain the movement of firms from the informal to the formal sector?”
Design/methodology/approach
Data from 719 urban formal enterprises included in the 2016 El Salvador Enterprise Survey undertaken by the World Bank forms the basis of the empirical analyses. The survey questionnaire comprehensively encompasses business practices and performance and the overall business environment.
Findings
Multivariate results reveal location, firm maturity, problems with land acquisition, a line of credit or active business loan, extortion by street gangs and practices of informal competitors increase the odds of informal firms becoming formal enterprises. Lessening the odds of once informal firms moving to the formal sector include the lack of access to public utilities, visitation by tax officials, formation as a corporation, bank accounts, number of employees and time spent focused upon government regulations.
Originality/value
Contextualized within the national setting of El Salvador, the integration of informal enterprises into the formal economy and related public policy implications of informal firm regularization are discussed.
Propósito
Las empresas de países desarrollados y en desarrollo a menudo comienzan su vida en el sector informal y que opera fuera del ámbito de la supervisión gubernamental. Sin embargo, el cambio de empresas sectoriales, desde el sector informal al formal, no está bien estudiado. Este artículo busca responder la siguiente pregunta de investigación: “¿Qué marcadores de nivel de empresa ayudan a explicar el movimiento de las empresas del sector informal al formal?”
Diseño/metodología/enfoque
Los datos de 719 empresas formales urbanas incluidas en la encuesta de empresas de El Salvador de 2016 realizada por el Banco Mundial constituyen la base de los análisis empíricos. El cuestionario de la encuesta abarca de manera integral las prácticas y el rendimiento empresarial y el entorno empresarial general.
Hallazgos
Los resultados multivariables revelan la ubicación, la madurez de la empresa, los problemas con la adquisición de tierras, una línea de crédito o un préstamo comercial activo, la extorsión por parte de pandillas callejeras y las prácticas de competidores informales aumentan las probabilidades de que las empresas informales se conviertan en empresas formales. Disminuir las probabilidades de que una vez las firmas informales se muden al sector formal incluyen la falta de acceso a los servicios públicos, las visitas de los funcionarios tributarios, la formación como corporación, las cuentas bancarias, el número de empleados y el tiempo dedicado a las regulaciones gubernamentales.
Originalidad/valor
En el contexto nacional de El Salvador, se analiza la integración de empresas informales en la economía formal y se discuten las implicaciones de las políticas públicas relacionadas con la regularización de empresas informales.
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Colin Williams and Sara J. Nadin
Although it has been recognised that many entrepreneurs operate in the informal economy, little is so far known about their reasons for doing so. The purpose of this paper is to…
Abstract
Purpose
Although it has been recognised that many entrepreneurs operate in the informal economy, little is so far known about their reasons for doing so. The purpose of this paper is to begin to unravel entrepreneurs’ rationales for trading in the informal economy in order to consider what policy measures need to be adopted to facilitate their formalisation.
Design/methodology/approach
To do this, the results of an empirical survey are reported conducted in Ukraine during 2006/2007 with 331 individuals who had started-up or owned/managed an enterprise.
Findings
Revealing that the rationales for entrepreneurs operating in the informal economy markedly differ according to whether they are wholly or partially informal entrepreneurs operating temporarily or permanently in the informal economy, the result is a call for a move beyond a “one-size-fits-all” policy approach and towards a variegated public policy approach whereby policy measures are tailored to tackling the different types of informal entrepreneurship, each of which operate informally for varying reasons.
Research limitations/implications
No evidence yet exists of whether the rationales for engaging in each type of informal entrepreneurship, and the consequent policy measures that need to be used to formalise each type, are more widely valid. Further research to evaluate this is required.
Originality/value
This is the first paper to start to move beyond a “one size fits all” policy approach when considering how to facilitate the formalisation of entrepreneurs in the informal economy.
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