Institutional Voids and Entrepreneurial Orientation: The Moderating Role of Market and Nonmarket Strategies

Abstract

Extant work has shown entrepreneurial orientation is more likely to emerge in economic environments characterized by strong formal and informal institutions. In developing countries, such institutions are not always present. This is the case, especially, for those formal institutions conducive to entrepreneurial activity. In the current paper, we examine the extent to which entrepreneurial orientation can emerge despite underdeveloped formal institutions. We argue that entrepreneurs can utilize market and nonmarket strategies to mitigate against the lack of supportive formal institutions. Furthermore, we propose that these strategies unlock similar benefits so are substitutes instead of compliments. We test our predictions using a panel dataset of firms operating in China. We find that a high degree of formal institutional void reduces entrepreneurial orientation, and that both market (i.e., location choice) and nonmarket strategy (i.e., corporate philanthropy) can mitigate that negative effect. In addition, we find that combining a market strategy with a nonmarket strategy tends to be detrimental, i.e., these strategies are substitutes. Our findings imply that firms seeking to be entrepreneurial can rely on market or nonmarket strategies in environments where typical formal institutions are underdeveloped.

Keywords: Formal institutional void, Entrepreneurial orientation, Market strategies, Nonmarket strategies, Emerging Economie