The informal economy and the entrepreneurial cycle

Abstract

Purpose

This study aims to explore the direct and indirect relationships among the informal economy, innovation, entrepreneurial and initial public offering (IPO) activity.

Design/methodology/approach

This study uses an unbalanced sample of 30 countries over a 15-year period: 2000–2014. The proposed random-effects model is estimated using feasible generalized least squares with robust estimators of variance.

Findings

Entrepreneurial activity is positively related to IPO activity. The informal economy negatively moderates the relationships among entrepreneurship, innovation and IPOs.

Practical implications

IPOs are a stage in the entrepreneurial process susceptible of being influenced by country level factors. An appropriate understanding of these factors can contribute to discuss policies that improve the level of IPO activity.

Originality/value

The authors explore the understudied relationship of the informal economy and entrepreneurship. Although entrepreneurial activity can be higher in contexts with more informality, this relationship can turn sour in later stages since it lowers the probability of higher IPO activity by inhibiting formal entrepreneurship and innovation. Hence, the main contribution is to provide evidence of this “hangover” effect.

Citation

Rivas, J.L. and Adamuz, M.d.l.M. (2024), "The informal economy and the entrepreneurial cycle", Management Research, Vol. 22 No. 4, pp. 564-584. https://doi.org/10.1108/MRJIAM-01-2024-1504