Regulatory Burdens, Corruption, and Informal Competition: Determinants of Incorporation in Bangladesh

ABSTRACT This paper examines how specific characteristics of the business environment, namely, procedural delays, exposure to bribery, and the presence of informal competitors, affect the incorporation decisions of firms in Bangladesh. Drawing on three rounds of data from the World Bank Enterprise Surveys, the analysis employs instrumental variable regressions, using group‐level cell averages constructed by region, industry, and firm size to address endogeneity concerns. The findings reveal that longer waiting times for permits and greater management time spent on regulatory compliance significantly reduce the likelihood of incorporation. In contrast, firms experiencing higher bribery costs and more frequent solicitation of bribe payments are more likely to incorporate. In addition, competition from informal firms reduces the probability of incorporation.