Why Informal Firms Formalize: A Strategic Decision-Making Perspective

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Abstract

We offer a behavioural framework to explain informal firms’ decision to formalize. We argue that aspirations for which firms skirt formal regulation to operate in the informal economy serve as reference points in interpreting and evaluating the prospect of formalization. We differentiate between the influences of firms expected performance relative to aspired performance and the influence of different form of aspiration being pursued (aspirations related to subsistence, exploitation, legacy, and resistance). In conclusion, we contribute to extant research emphasizing formalization as a quasi-rational calculation by recognizing how formalization can be seen as a complex decisions-making process surrounded by severe information incompleteness and uncertainty.
Original languageEnglish
Title of host publicationProceedings of the Eightieth Annual Meeting of the Academy of Management
EditorsGuclu Atinc
Number of pages1
Place of PublicationBriarcliff Manor, NY
PublisherAcademy of Management
Publication date2020
DOIs
Publication statusPublished - 2020
EventThe Academy of Management Annual Meeting 2020: Broadening Our Sight - Virtual
Duration: 7 Aug 202011 Aug 2020
Conference number: 80
https://aom.org/events/annual-meeting/past-annual-meetings/2020-broadening-our-sight

Conference

ConferenceThe Academy of Management Annual Meeting 2020
Number80
LocationVirtual
Period07/08/202011/08/2020
Internet address
SeriesJournal of International Business Studies
ISSN0047-2506

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