The Impact of Local Deviance from National-Level Norms on a Community’s Entrepreneurial Activity

Abstract

Institutional theorists have begun to explore how deviance, or the extent to which institutions are violated, impacts entrepreneurial activity. However, the literature has thus far focused on formal deviance, or the extent to which regulatory institutions are violated, concluding a negative relationship between formal deviance and entrepreneurship due to heightened mistrust in the community. Drawing from Durkheimian Sociology, we postulate that the relationship functions differently for informal deviance, or the extent to which normative institutions are violated. Specifically, we argue that increasing levels of local deviance from national-level norms will foster greater entrepreneurial activity within communities due to informal deviance’s impact on community social capital. We test this argument using longitudinal data on all 2448 municipalities in Mexico. The results, and a series of robustness checks, confirm our hypotheses. Overall, our study contributes to research within the institutional approach to entrepreneurship by demonstrating that the impact of deviance on entrepreneurial activity operates differently across institutional pillars.