Stability Vs. Flexibility: the Effect of Regulatory Institutions on Opportunity Type
Susan L. Young, Christopher Welter and Michael Conger
Journal of International Business Studies (forthcoming)
Institutional environments vary widely across countries, making them challenging to navigate, especially for new ventures. How do their inherent risk and uncertainty affect the type of entrepreneurial opportunities pursued in a particular country? Though risk and uncertainty are distinct—risk, but not uncertainty, can be estimated—the literature often treat these terms as interchangeable, and rarely considers their dual influence. Here, we introduce a new theoretical model based on institutional economics that describes how institutional arrangements promoting stability and the ability to assess risk lead to more imitative opportunities, while those promoting flexibility and the ability to respond to uncertainty foster more innovative opportunities. We tested this framework using data on 40 countries and found that protection of property rights and relatively transparent taxation policies promote institutional stability and imitative ventures, while flexible labor choices, access to efficient capital markets, and permissive business regulations promote flexibility and innovation. Our results can inform government actions either to stimulate new industries or grow existing industries and spur competition. Additionally, by treating risk and uncertainty as distinct constructs, our study also makes theoretical contributions to research on institutional environments and different opportunity types. Overview
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