Seeking Assurances When Taking Action: Legal Systems, Social Trust, and Starting Businesses in Emerging Economies

Organization Studies, Forthcoming

33 Pages Posted: 25 Jul 2013 Last revised: 14 Sep 2013

See all articles by Phillip H. Kim

Phillip H. Kim

Babson College - Arthur M. Blank Center for Entrepreneurship

Mingxiang Li

University of Wisconsin - Madison - Department of Management and Human Resources

Date Written: September 13, 2013

Abstract

This study examines how institutional conditions provide assurances founders seek when creating businesses. Classical theories predict legal institutions promote supportive conditions that foster business creation. We develop an alternative theory for why this relationship is not as straightforward in emerging economies. In these regions, people may be discouraged from taking entrepreneurial action because of the difficulties in accessing legal protections efficiently. We also introduce theory regarding the moderating role of generalized social trust because of its normative influences on business creation. We argue generalized trust in strangers exerts positive moderating effects on the direct relationship between legal protections and entrepreneurship. The findings from our multilevel analysis of 30 emerging economies are consistent with our theory. Our work advances a new framework for how entrepreneurs cope with uncertain business conditions in emerging economies where informal, normative social structures offer more privately oriented safeguards than do formal, publically oriented institutions. Our study also reconnects macro-institutional theories with individual-level accounts of entrepreneurship.

Keywords: Legal systems, protective function of law, normative institutions, social trust, nascent entrepreneurship, emerging economies

JEL Classification: A14, C42, K40, M13, O17, O34, O57

Suggested Citation

Kim, Phillip H. and Li, Mingxiang, Seeking Assurances When Taking Action: Legal Systems, Social Trust, and Starting Businesses in Emerging Economies (September 13, 2013). Organization Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2297439

Phillip H. Kim (Contact Author)

Babson College - Arthur M. Blank Center for Entrepreneurship ( email )

231 Forest Street
Babson Park, MA 02457-0310
United States

Mingxiang Li

University of Wisconsin - Madison - Department of Management and Human Resources ( email )

Madison, WI
United States

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