Title: Political discretion and corruption: the impact of institutional quality on formal and informal entrepreneurship
Authors: Alfredo Jimenez; Julio César Puche-Regaliza; Juan Alfredo Jiménez-Eguizábal; Ilan Alon
Department of Management, Kedge Business School, 680 cours de la Liberation, Talence 33405 France
Department of Business Economics, University of Burgos, C/Parralillos s/n 09001 Burgos, Spain
Department of Educational Sciences, University of Burgos, C/Parralillos s/n 09001 Burgos, Spain
School of Business and Law, University of Agder, Post Box 422 4604 Kristiansand, Norway
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.
Keywords: institutional quality; political discretion; corruption; firm creation; formal entrepreneurship; informal entrepreneurship; new venture creation; political constraints; political risk; rule of law.
European J. of International Management, 2017 Vol.11, No.3, pp.280 - 300
Submission date: 13 Dec 2015
Date of acceptance: 15 Aug 2016
Available online: 03 Apr 2017