Formalizing & Re-legitimatizing

Research Paper Title:

“Good apples in spoiled barrels: A temporal model of firm formalization in a field characterized by widespread informality”

Authors:

Valeria Cavotta (Free University of Bozen-Bolzano)
Elena Dalpiaz (Imperial College London)

Highlights:

• Entrepreneurship research that relies on averages ignores the discipline's dynamism.

• The formalization process requires different institutional works over time.

• Challenges to formalization depend on the characteristics of the institutional field.

• Formalization may reintroduce the liability of newness.

• Inductive, longitudinal studies unveil the complexity of formalization.s.

Methodology:

• Sample Description: One of the few informal firms in Italy that survived after confiscation operating formally in a context dominated by informality

• Sample Size: One illuminative case

• Analytical Approach: Grounded theory

Results:

1. Moving from informal to formal entrepreneurship in fields where informality is widespread is a two-phase process that entails first extricating the enterprise from the influence of informal institutions and then cultivating formal institutions in the field to increase the firm’s legitimacy.

2. Extrication work neutralizes the pressures of informal institutions that would have otherwise jeopardized formalization.

3. Cultivation work is an ongoing endeavor to widen the endorsement of formal institutions in a field where informality is widespread.

Conclusion:

The passage from informal to formal entrepreneurship in fields where informality is widespread is a lengthy, dynamic, and complex process. Formalizing re-introduces the liability of newness to mature firms, as it causes the loss of legitimacy and established business relationships among informal actors and thus triggers the need to establish legitimacy and new relationships with formal actors.