ETHNIC FRACTIONALIZATION AND INFORMAL ENTREPRENEURSHIP: AN INSTITUTIONAL LOGICS PERSPECTIVE
Proceedings Paper
Mallon, MR, Fainshmidt, S. (2023). ETHNIC FRACTIONALIZATION AND INFORMAL ENTREPRENEURSHIP: AN INSTITUTIONAL LOGICS PERSPECTIVE
. BEST PAPERS PROCEEDINGS - FIFTY-FIFTH ANNUAL MEETING OF THE ACADEMY OF MANAGEMENT, 2023(1), 10.5465/AMPROC.2023.58bp
Mallon, MR, Fainshmidt, S. (2023). ETHNIC FRACTIONALIZATION AND INFORMAL ENTREPRENEURSHIP: AN INSTITUTIONAL LOGICS PERSPECTIVE
. BEST PAPERS PROCEEDINGS - FIFTY-FIFTH ANNUAL MEETING OF THE ACADEMY OF MANAGEMENT, 2023(1), 10.5465/AMPROC.2023.58bp
Prior research tends to focus on weak state institutions as drivers of informal entrepreneurship. Drawing from the institutional logics perspective, we posit that informal entrepreneurship may be a consequence of the social structure that shapes prevailing logics. Specifically, ethnic fractionalization in society undermines social cohesion by casting ethnic identity as an alternative institutional logic to that of the bureaucratic state, increasing the likelihood that entrepreneurs will not register their ventures. However, we further argue that the effect of ethnic fractionalization is mitigated by the entrepreneur’s ties with lawyers or individuals with business experience because such ties introduce legal and market institutional logics, respectively, to founders’ cognition, emphasizing both the benefits of legal registration and the potential costs of not registering. We find support for these arguments using a sample of over 5,000 entrepreneurs operating in 29 countries. Our study explicates a novel socio-cultural antecedent of informal entrepreneurship, pinpointing ethnic embeddedness as a critical mechanism underlying critical business formation decisions. Further, by explicating that multiple embeddedness through social ties can shape the salience of particular logics in business registration decisions, we advance research on how entrepreneurs interact with the larger institutional environment.
