Advancing the institutional perspective on informal entrepreneurship: a study of the formalisation intentions amongst street entrepreneurs

Abstract

Purpose: Informal entrepreneurship is seen as a direct outcome of either the failure of formal institutions or the asymmetry between formal and informal institutions. These two viewpoints are so far debated as alternative theoretical explanations for the prevalence of informal entrepreneurship. In this paper, we offer a theoretically integrative approach to further advance the institutional perspective of informal entrepreneurship.

Design/methodology/approach: Using face-to-face surveys of 322 street entrepreneurs from Lahore, Pakistan, we deploy the hitherto unused Partial Least Square approach to Structural Equation Modelling (PLS-SEM) to analyse data within the field of informal entrepreneurship.

Findings: The empirical findings strongly support the theoretical propositions of the new institutional perspective that we present in our paper. We find no direct impact of factors like procedural justice, redistributive justice and public sector corruption (i.e. formal institutional failings) on the formalisation intentions of street entrepreneurs. Our findings demonstrate that the relationship between formal institutional failings and formalisation intentions can only be explained through the mediating role of institutional asymmetry (i.e. tax morality).

Research Limitations/Implications: From a policy perspective, we find that if we can encourage street entrepreneurs to obtain a local-level registration as the first step toward formalisation, it will significantly increase their chances to opt for higher national-level registrations.

Originality/Value: This paper presents a unique attempt to further understand the context of street entrepreneurship through the theoretical lens of institutional theory. In doing so, it synthesises the arguments of existing institutional perspectives and further develops the institutional theory of informal entrepreneurship. Moreover, the paper develops the concept of ‘formalisation intentions’.

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