Institutional Constraints and Entrepreneurial Responses in a Transforming Economy

Abstract

Previous research on entrepreneurship has largely focused on start-up firms in the relatively stable environment of developed economies, whereas scholarship on transforming economies has paid primary attention to large and established firms. Entrepreneurial efforts in a turbulent institutional environment during the radical reforms in the formerly centrally planned economies are still relatively understudied. Using a comparative case study method, this study examined how the reforming institutional environment in Bulgaria influenced the strategic behavior of entrepreneurial firms. We identified the key institutional entities/agents, the major characteristics of the institutional environment, and analyzed the strategic responses of the entrepreneurial companies and their performance implications. We found that lawmakers, tax collection agencies, and regional authorities issuing various business permits and licenses are among the key institutional players, and that the current institutional environment is unpredictable, corrupt, hostile, and detrimental to the growth of private entrepreneurial firms. Entrepreneurial responses, as a result, included short-term orientation, informal networking, opportunism, and surplus extraction. Theoretical and practical implications are provided.

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