Political discretion and corruption: the impact of institutional quality on formal and informal entrepreneurship
by Alfredo Jimenez; Julio César Puche-Regaliza; Juan Alfredo Jiménez-Eguizábal; Ilan Alon
European J. of International Management (EJIM), Vol. 11, No. 3, 2017

Abstract: This paper analyses the impact of political discretion and corruption on firm creation rates, distinguishing between formal and informal entrepreneurship. The results show that political discretion discourages the creation of formal enterprises as fewer restrictions on the government's opportunistic behaviour increases uncertainty and risks for entrepreneurial activities. Corruption also has a negative influence on formal entrepreneurship, as it increases the costs of the procedures required to create and manage the company with no assurance that the other party will fulfil the agreement. Regarding informal entrepreneurship, our results show that the negative impact of corruption also applies to non-formalised firms.

Online publication date: Tue, 25-Apr-2017

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