The moderating effect of corruption on the relationship between formal institutions and entrepreneurial activity

Abstract

PurposeCorruption has been shown to discourage entrepreneurship in both developed and developing countries. However, it is less clear to what extent corruption affects the development of institutions’ impact on entrepreneurial activity in the context of emerging economies, such as those in the post-communist countries. The purpose of this study is to use institutional economics as a conceptual framework to analyse the moderating effect of control of corruption (informal institution) on the relationship between formal institutions (such as the number of procedures, education and training [TEDU], access to finance and technology absorption) and entrepreneurial activity.Design/methodology/approachThe study used panel data of 14 post-communist countries and different secondary databases from the years 2006-2016.FindingsThe main findings showed the importance of the institutional environment (formal and informal) on encouraging the rates of entrepreneurial activity. Overall, corruption showed that it behaves as a moderator between formal institutions and entrepreneurship. In particular, the evidence from this study showed that formal institutions, such as the number of procedures and TEDU, are more likely to encourage individual’s choice to become an entrepreneur and start a new business activity in post-communist economies that have a perception of lower levels of corruption.Originality/valueThis study has several implications from both theoretical perspectives (advancing the application of institutional economics for the study of entrepreneurship) and from the practical point of view (providing insights for governmental policies interested in fostering higher levels of entrepreneurial activity).