Keeping it informal? The role of national governance and culture in informal entrepreneurship enablement

Purpose As economies transition towards increasingly formalised, market-driven and capitalistic structures, this study examines why entrepreneurs choose to initiate their businesses informally. Drawing on new institutional economics and the external enablement framework, this research investigates how the interaction between formal governance structures and informal cultural values shapes informal entrepreneurial activity. Design/methodology/approach The analysis relies on panel data from 36 countries over 12 years, integrating measures from the Global Entrepreneurship Monitor Adult Population Survey (GEM APS), World Governance Indicators, GLOBE and World Development Indicators. Random-effects generalised least squares (GLS) panel regressions are employed to examine the curvilinear relationship between national governance and informal entrepreneurship, as well as the moderating effects of cultural values in this relationship. Findings This study provides evidence of a U-shaped relationship between national governance and informal entrepreneurship. Initially, low levels of governance reduce the costs associated with starting informal businesses, making such ventures more appealing. As governance improves, the likelihood of establishing informal businesses decreases until a regulatory effectiveness peak is reached. Beyond this point, however, further increases in governance levels inadvertently promote informal entrepreneurship through a legitimation mechanism that empowers concealed entrepreneurial action. Further, the results demonstrate that the agency-intensity of this legitimation mechanism varies according to cultural values. Originality/value This study contributes an empirical account of how formal and informal institutions jointly shape informal entrepreneurship enablement, demonstrating a curvilinear governance effect moderated by national cultural values.