The impact of informal social interaction on innovation capability in the context of buyer-supplier dyads

Although many studies employ social network theory to explain firm innovation, how individual-level factors lead to a firm's collective innovation capability remains under-researched. Building on studies that use the work boundary to define formal and informal social interactions, this research aims to illuminate how informal buyer-supplier employee interactions influence buyer firms' innovation capabilities through knowledge acquisition. Integrating the literatures on absorptive capacity and social interaction, the analysis of survey data from 273 Chinese manufacturing firms suggests that employees' informal interactions are positively associated with knowledge acquisition and enhance firms' innovation capabilities. Furthermore, the indirect effects of informal interactions on innovation capability are moderated by knowledge application.     

Political connections and entrepreneurial investment: Evidence from China's transition economy

Recent literature in entrepreneurship suggests that market and legal institutions matter for entrepreneurial investment. Yet, prior studies have focused on the role of formal institutions. Building on new institutional theory and political connections literature, this study aims to evaluate the role of political connections in entrepreneurial reinvestment in less developed and transition economies. The purpose of this paper is threefold. First, it aims to demonstrate systematically how political connections affect entrepreneurial reinvestment. Second, it applies this relationship to a subsample group, i.e., Small and Medium Enterprises (SMEs), in order to empirically test whether political connections are more beneficial for large firms or SMEs. Third, it demonstrates that political connections substitute for, rather than complement, formal market and legal institutions. The empirical test uses a nationally representative sample of entrepreneurial firms from China's transition economy.     

Does religion influence location choice in the hotel industry?

Relying on data from the Spanish hotel industry, this paper analyzes the role of informal institutional factors (IIF) in location choice. Earlier studies mostly use an aggregate level of cultural differences as informal institutional factors. We, however, go deeper into this concept and study the impact of two distinct but interrelated informal institutional factors, religion and language, on the location decisions of hotel chains. We resolve the overlapping problem between these two highly correlated IIF by means of a ‘layer’ measurement in Confirmatory Factor Analysis. Our results show that the higher the informal institutional differences (IID), the lower the presence of the hotels in the foreign country. While physical distance plays a key moderating role, formal institutional differences (FID) did not show any effect. We contribute by unravelling the role of language and religion in location choice in the internationalization process of service firms. Moreover, we test the moderating role of formal institutions in these decisions, thus combining the impact of formal and informal institutions on location choices in service firms.     

Institutional determinants of ownership stake in cross-border acquisitions in Africa: The moderating role of geographic distance

We look at how emerging markets' institutional features affect ownership stake in cross-border acquisitions (CBAs) within Africa. Particularly, we show that the presence of shared colonial history between the home and host country and the extent of fractionalization distance and formal institutional distance influence the acquiring firm's decision regarding its ownership stake in the target. Moreover, we show that geographic distance between the home and host country, by augmenting uncertainty faced by acquiring firms, moderates the relationship between these institutional features and ownership stake. We test our hypotheses in a sample of 341 intra-Africa CBAs from 2001 to 2016. Generally, we find that greater ex ante uncertainty and ex post costs increase ownership stake. Specifically, greater geographic distance strengthens the positive relationship between shared colonial history and ownership stake and reverses the negative relationship between formal institutional distance and ownership stake. As for fractionalization distance, the relationship is more nuanced and needs to be further studied. We contribute to advance research on south–south CBAs in general, particularly within Africa, as well as to extend hostage theory in foreign market entry strategies in and from emerging markets.     

Liability of informality and firm participation in global value chains

Building on imprinting theory, we formalize the construct ‘liability of informality’, arguing that firms that start operating in the informal sector but later move to the formal sector are less likely to participate directly, and more likely to participate indirectly, in global value chains (GVCs) than those that start out as registered businesses. We further argue that the amount of time spent in the informal sector emphasizes these effects. Using World Bank Enterprise Survey data from 112 developing and emerging economies, we show that informality leaves a strong blueprint on firms, which tends to persist over time.     

Resources,home institutional context and SMEs’ exporting: Direct relationships and contingency effects

Research highlights the role of resources in SMEs’ exporting but is less forthcoming with respect to entrepreneurial perceptions of home institutional quality. Drawing on institution-based lenses, we distinguish among formal, informal, and regulatory institutions, which in concert with firm resources are expected to influence SMEs’ export behavior. Our predictions are tested on a sample of 150 firms located in Greece. The analysis of direct relationships shows that formal and informal institutional dimensions affect significantly, but differently, SMEs’ export activity. The analysis of interaction effects demonstrates that resource decisions for exporting are contingent upon entrepreneurial perceptions of the home institutional context, such that SMEs respond to formal and informal domestic institutional weaknesses by intensifying resource allocations to fuel export sales. In an opposite direction, export regulatory complexity reverses the positive resources-exporting link. These findings suggest the importance of home institutions in the exporting field.     

Informal payments by patients for health services: prevalence and determinants

ABSTRACT

The aim of this paper is to explain the prevalence of informal payments in the health services sector in Southern Europe using the lens of institutional theory. To evaluate whether informal payments prevail due to formal institutional failures which lead to an asymmetry between the laws and regulations (formal institutions) and the unwritten rules (informal institutions), an analysis is undertaken of 2013 Eurobarometer survey data on the propensity to make informal payments by patients in Southern Europe. A strong association is found between the extent to which formal and informal institutions are unaligned, and the prevalence of informal payments, and such payments are found to be more likely when there is a lack of modernisation of governance coupled with a low range and reach of health services provision, lower health outcomes and systems focus on curative rather than preventative health services. The theoretical and policy implications are then explored.     

Informality,tariffs and wealth

This article analyzes the interaction between changes in tariff protection, informality, inequality and aggregate income. First, we describe some new empirical evidence on informality, the formal/informal wage gap and trade openness in Latin American countries. Then we present a simple model characterized by three (empirically based) assumptions: (1) agents consume both formal and informal goods; (2) the government uses tariff revenues to purchase formal goods; (3) informality is a voluntary phenomenon. The model predicts that tariff reduction increases informality and wage inequality and that the maximization of income requires a positive level of tariff protection. The model's results are shown to be consistent with the empirical evidence concerning Latin American countries.     

Institutional environment and firms' sources of financial capital in Central and Eastern Europe

The external business environment is a major determinant of which sources firms select to obtain financial capital. We examine how the regulatory, political, and financial dimensions of the institutional environment influence the extent to which firms rely on informal sources of financial capital. The analyses of data from 2869 firms in twenty-six transition economies in Central and Eastern Europe (CEE) indicate that ineffective regulatory system, underdeveloped financial system, and government corruption are strong determinants of firms' reliance on informal channels for financial capital. We also find that smaller firms are more vulnerable when the local financial system is underdeveloped and the regulatory institutions are less effective in these transition economies. A subgroup analysis of firms' forms of establishment shows that private firms are sensitive to the level of development of the local financial system and state-owned enterprises are particularly sensitive to the degree of corruption.     

Regional social capital and moral hazard in crowdfunding

We contribute to institutional and social capital theory by developing a theoretical framework that suggests that informal and formal institutions are important in mitigating moral hazard in reward-based crowdfunding. We analyze a large sample of Kickstarter campaigns to test these predictions. We find a strong positive relationship between entrepreneurs' home-county social capital and their crowdfunding performance. A rule change that strengthens entrepreneurs' obligation to provide backers with the promised rewards is associated with a reduction in the effect of social capital, suggesting that formal institutions can substitute for informal ones and provides causal evidence of the effect of social capital.     

Unpacking Institutional Distance: Addressing Human Capital Development and Emerging‐Market Firms’ Ownership Strategy in an Advanced Economy

As latecomers to global business competition, emerging‐market multinational companies (EMNCs) utilize cross‐border mergers and acquisitions (M&As) to quickly acquire strategic assets, resulting in an improved competitive position. Advanced markets with well‐established firms and well‐developed market‐supporting institutions become particularly important destinations for EMNCs’ foreign operations. Institutional distance, which represents conflicting legitimacy requirements between the host and home institutional environments, is expected to be negatively associated with the foreign acquirer's ownership position. The current study examines a sample of EMNCs’ cross‐border M&As in the United States between 2005 and 2011 and reveals the unique nature of EMNCs’ ownership strategies. Taking both formal and informal institutions into consideration, our findings suggest that EMNCs originating in countries with lower levels of human capital development may have more urgency in seeking ownership control in advanced markets and are less influenced by the negative association of institutional distance in their ownership strategy. © 2016 Wiley Periodicals, Inc.     

Determinants of proactive innovative behaviour in new services: empirical investigation of service versus manufacturing firms

The research performs a complete analysis of the differences between services and products based on factors associated with the innovation process. The research analyses the factors/dimensions and their repercussions that determine firms' capacity to adapt to their environment and observes how the critical dimensions of the innovation process influence the gap generated by the difference in the firm's current level of innovation and the level developed by the competition. The results show that the client's participation in the process of innovation is greater in service firms that possess a larger innovation gap and are more proactive. The opposite is the case for formalization and decentralization, which occur in lower levels in this kind of firm. Further, decentralization and formalization are lower in service than in manufacturing firms.     

The contingent value of social resources: Entrepreneurs' use of debt-financing sources in Western China

This study shows that entrepreneurs' use of debt-financing sources is conditioned by the resources embedded in their social networks. More business or political contacts increase entrepreneurs' probability of using formal financial sources, and more urban ties increases their probability of using informal sources. However, the effects of business and bureaucratic ties are contingent on community-level institutional trust and on firms' age. Business ties have greater positive impact on the probability of using formal financial sources for older firms and for those in regions with a higher level of institutional trust, while the impact of bureaucratic ties on these firms is weaker.     

Informal firms in developing countries: entrepreneurial stepping stone or consolation prize?

The potential dynamic benefits of a firm having the option to adopt informal status are analysed. Informality may be a stepping stone, without which formality may never be achieved. This result is obtained for a broad range of realistic parameter values, suggesting a potential dynamic case for government support of informal firms. Informality may alternatively play a converse role as a consolation prize, with a firm only entering an industry (formally) because it recognizes that if profitability is disappointing, it can switch to informality. However, this result is obtained for a range of parameter values so narrow as to be of no practical significance.     

The interplay between home and host country institutions in an emerging market context: Private equity in Latin America

This study examines how the interplay between home and host country regulatory institutions affects the investment strategy of private equity (PE) firms in an emerging market context. To answer this question, we consider three different mechanisms: (1) the institutional hazard avoidance effect, (2) the institutional escapism effect, and (3) the dysfunctional institutions effect. Contrary to conventional wisdom, we argue that regulatory institutional differences between home and host countries can sometimes have a positive rather than a negative effect on investment likelihood. Our findings show that when a host emerging market has a strong regulatory institutional system relative to other emerging markets, it is more likely that this country will attract PE investments from firms based in home countries with very strong and very weak institutional systems. The empirical analyses, based on a polynomial specification and a dataset covering more than 300 PE firms that made close to 1500 investment transactions in Latin America during 1996–2011, are consistent with our main theoretical arguments.     

Firm capability and performance in China: The moderating role of guanxi and institutional forces in domestic and foreign contexts

This study examines the moderating effects of institutional forces on the capabilities–performance link by combining the resource-base view and institutional theory. From a survey of 324 Chinese manufacturers, this study tests the impacts of the importance of guanxi (an informal institutional factor) and legal support (a formal institutional factor) on the performance advantages of firm capabilities. The results indicate that both marketing and technology capabilities relate positively to performance, but the performance advantage of technology capabilities is less prominent when guanxi is important and the legal system is ineffective. In addition, guanxi importance strengthens the performance advantage of domestic firms' marketing capabilities but reduces that of foreign firms' marketing capabilities in China.     

How much of a socialist legacy? The re-emergence of entrepreneurship in the East German transformation to a market economy

We investigate how institutional change—the transition from a socialist system to a western type market economy—relates to the re-emergence of entrepreneurship in East Germany. This region is particularly well suited for such a study because of the rapid change of the institutional framework and the possibility to use West Germany as a benchmark. It took about 15 years until self-employment levels in East Germany reached those of West Germany. Despite this catch up, we find a number of peculiarities in East German self-employment that appear to be a continuing legacy of the socialist period. There is also a considerable correspondence of the regional levels of self-employment before, during and after the socialist period, suggesting the existence of a long-lasting regional entrepreneurship culture that can be regarded as an informal institution. This is in line with the hypothesis that informal institutions change much more slowly than formal institutions.     

The Performance Impact of Informal and Formal Institutional Differences in Cross-Border Alliances

This study addresses the simultaneous and diverse effects of differences in informal and formal institutions on cross-border alliances’ financial performance. We utilize data from 405 microfinance institutions (MFIs), based in 74 developing countries, that have alliances with partners from developed countries. We find that the impact of informal institutional differences between MFIs and their cross-border partners is sigmoid-shaped, with performance first increasing, then declining, before improving again as informal institutional differences grow large. By contrast, formal institutional differences appear to be detrimental to MFIs’ performance. Consistent with our prediction, we find that MFIs’ cross-border experience moderates both formal and informal institutional effects.     

Economic informality and the venture funding impact of migrant remittances to developing countries

In developing countries, weak institutional capacity to observe and regulate the economy discourages foreign capital inflows vital to venture investment. This informality effect may differ for migrant remittances, inflows less reliant on formal arrangements. We use institutional and transaction cost theories to propose that informality shifts migrant remittances toward venture funding. Analyses in 48 developing countries observed from 2001 to 2009 support our proposition. When the informal sector exceeds approximately 46% of GDP, remittances increase venture funding availability. Migrants and their remittances are vital to funding new businesses and entrepreneurially-led economic growth in developing countries where substantial informality deters other foreign investors.     

Entrepreneurs' responses to semi-formal illegitimate institutional arrangements

While prior research has discussed how entrepreneurs deal with formal institutional voids and informal institutional environments, little is known about how entrepreneurs respond to institutional arrangements involving illegitimate actors. We define such arrangements as semi-formal illegitimate institutions. Using an exploratory study, we examine one such arrangement in Guatemala City, where organized crime dominates the institutional landscape in which entrepreneurs operate. We examine the strategic responses of these entrepreneurs, and find that they vary in the extent to which they resist semi-formal illegitimate institutions; some entrepreneurs engage in defiance, others avoid the illegitimate pressures, while others simply acquiesce. Upon further investigation, we find that the differences in entrepreneurs' network strength and network proximity, combined with their individual perception of threat and resource mobility, help to predict the different strategic responses.