Informal Entrepreneurship and Industry Conditions

• Published in: Entrepreneurship theory and practice Vol. 40; no. 1; pp. 177 - 200
• Main Authors: Siqueira, Ana Cristina O., Webb, Justin W., Bruton, Garry D.
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA Blackwell Publishing Ltd 01-01-2016; SAGE Publications; Sage Publications, Inc; SAGE PUBLICATIONS, INC
• Subjects: Analysis; Businesspeople; Economic aspects; Economic conditions; Entrepreneurship; Forecasts and trends; Industrywide conditions; Informal economy; Risk management; Studies; Brazil
• ISSN: 1042-2587; 1540-6520
• DOI: 10.1111/etap.12115

Scholars have argued that informality is driven by the degree to which it is expensive or difficult to operate in the formal economy. In contrast, we argue that firms choose to be informal or formal partly driven by industry conditions. We examine informal firms that are not registered with a governmental authority. Based on a large data set of Brazilian businesses, we find that firm informality is positively associated with dynamism, yet negatively associated with munificence and concentration. Our findings suggest that informality is a decision driven by both cost of registering and risk reduction for entrepreneurs depending on industry conditions.