1. AND BEYOND
Institutions and Entrepreneurship

2. Institutions and Entrepreneurship
• Cognitive, normative, and regulative environment.
– Cognitive: shared perceptions about the boundaries and viability of new
kinds of economic activity.
– Normative: normative actors-explicitly shape social norms and values
(social movement organizations, professions, industry associations,
certification organizations, status hierarchies).
– Regulative/coercive: laws and administrative guidelines that constitute
basic rules governing market transactions/Coercive actors. Rule of law,
corruption,

3. Opportunity creation
Institutional Opportunity exploitation
Environment
New venture structure &
processes

4. Nascent Entrepreneurship
• Liability of newness (cognitive)
– Legitimacy
– Networks
– Reputation
• Liability of size
– Limited resources
• May lack normative support (industry associations)
• Powerful incumbents
• Institutional inertia (existing structures favor incumbents)

5. My Focus
• How does the relative capacity of political
institutions to enforce policy enable or constrain
entrepreneurial processes and outcomes?
Cocaine processing lab
under attack

6. Alfonso Cotes
(2011) & Blockbuster (2009)

7. Miguel Barrios & Michael Cobb

8. New Power Structures
The Tunisian Revolutionaries

9. Institutional Failure
• Political institutions can have profound
impact on fledgling organizations
(Weber, 1978)
• The ―most remarkable features of
institutions‖ is that ―they enable newly
organized actors to act‖ (Fligstein, 2001)
• Political turmoil—local confrontations
inspired by or oriented to the wider
national political scene—is a salient
phenomenon (Carroll, Delacroix,
Goodstein, 1988)
Colombian entrepreneur

10. Institutional Failure
• Stichcombe’s call to take into account
impact of political stability and conflict
on organizations (1965:169)
• New firms benefit from strong, stable,
supportive state infrastructure (Aldrich,
1979; Pearce, 2001)
• Political turmoil favors agile and
innovative firms
• Individual and organization rigidifying
effects
Bogotá
• In contexts of high uncertainty, 1947
entrepreneurs face greater
challenges in garnering the
necessary support, such as labor,
capital, and customers, needed to
survive the first few years after
founding (Sine, Haveman, & Tolbert,
2005)

11. Institutional Failure
• Increases risk
• Decreases trust
• Decreases risk taking &
exploration
• 1 standard deviation increase
in violence
– Failure of 120,000 new
Bogotá
ventures 1947
– Loss of 250,000 jobs
– Increases the probability of
failure by 150%

12. Regime Change
• Increases uncertainty
and risk
• Changing regulatory
regimes
• Reduces benefit of old
regime ties
• Bogotá
1947
• Increases failure by
620%

13. Corruption
• Increases uncertainty &
risk
• Increases the cost of
doing business
• Increases failure by
120%

14. How do these environments affect
Entrepreneurial processes & strategies
• Planning
• Networking

15. Networking
• Network building activity & venture survival
• Political turmoil influences entrepreneur’s
sense of uncertainty
• Most research on networks focus on
benefits of ties without looking at costs and
risks of engaging in network-building
activities
• Trust required to reach out to non-
redundant ties
• Network-building activities are likely to be
perceived as more risky when PT is high
Colombian bootlegger entrepreneur: Licor
de panela producer and retailer

17. planning, network building, and political
turmoil
• Network building venture survival
• Political turmoil venture survival
• Political turmoil moderates business
planning
• Political turmoil reduces networking,
thereby increasing failure

18. Percentage of Firms that Fail
80%
70%
60%
50%
40%
30%
20%
10%
0%
With military ties Without military ties

19. Percentage of Firms Expropriated
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
With military ties Without military ties

20. Military ties and venture
survival
• Military ties offers new ventures
benefits:
– Governmental support, exports
– Protection
– Business contracts
Egypt’s Higher Military
– Credibility Council, 2011
General Than
Shwe, Burma

21. Synd. Condor VARIG
• Fritz Hammer, July  Otto Ernst Meyer,
1927 April 1927
• German investors  German investors
• German  German
technologists technologists
• Brazil’s largest  Brazil’s 2nd largest
airline by 1935 airline by 1935
• Expropriated 1943  Major Alberto Bins
 Audience w/state
assembly-state tax
subsidy

22. Contingency of military ties:
Military resources
• Military resources may improve benefits of military ties (Pfeffer &
Salancik, 1978)
• Indicator of its influence over civilian government
• Indicator of coercive power

23. Contingency of military ties:
Political instability
• Political instability may increase military autonomy & benefit of
ties
• Special protection from criminal networks, violence, heavy handed
government responses.

24. Contingency of military ties:
Foreign ownership
• Ventures with foreign ownership experience negative impacts
of national sentiment
• Popular way for civilian governments to build political support:
Evo Morales in 2006
• Government treatment to domestic vs. foreign

25. Contingency of military ties:
Competitive markets
• Military ties can provide access to scarce resources and
information.
• Access to limited credit (Faccio, Masulis, & McConnell, 2006)

26. Expropriation
 Military Tie reduces the rate of expropriation by 86%
 Foreign ownership increases the rate of expropriation by 10x
 Having a military tie mitigates the negative effects of foreign ownership

27. Results: Failure Analysis
 Military ties reduces the rate of failure by approx. 53%
 Regime change increases the impact of military ties
 Military ties are more effective in countries in which the
military is more powerful
 Military ties mitigates the negative effect of foreign ownership
 Military ties reduces the negative effect of domestic conflict
 Military ties reduces the negative effect of inter and intra
industry competition

28. Conclusion
• Institutional environments shape
– Founding
– Growth
– Entrepreneurial processes
• We need more research that
examines how institutional
environments shape nascent
entrepreneurs
• Institutional theory in sociology
– Power is a missing component
– In complex environments with weak
political institutions, we need to take
coercive actors seriously
General Augusto Pinochet

29. Nascent Entrepreneurship
• Liability of newness (cognitive)
– Legitimacy
– Networks
– Reputation
• Liability of size
– Limited resources
• May lack normative support (industry associations)
• Powerful incumbents
• Institutional inertia (existing structures favor incumbents)

30. Key Question: How does one obtain
such affiliations

32. Affiliations are now a central topic in my
international courses.