ENTREPRENEURIAL SPAWNING IN THE INFORMAL ECONOMY

Abstract

What is the career background of formal and informal entrepreneurs and does this influence their formalization decision? We employ the theory of planned behavior, social identity theory and embedded career capital framework to develop hypotheses on how the new venture formalization decision is dependent on the entrepreneur’s career history. We find that employment in a family business and in the private sector is related positively to founding a formal new venture. Furthermore, our results show that a career in the same industry as the new venture increases the likelihood of formalizing the venture. These findings emphasize the role of the career background in the entrepreneur’s formalization decision through building embedded-career capital, influencing the social identity and determining the attitude toward starting a formal versus informal new venture.

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