This study aims to examine the effects of individual cognitive factors and formal institutions on innovation and established business ownership within a holistic framework. More specifically, the study empirically analyzes the effects of socio-cognitive factors such as perceived opportunities, perceived capabilities and fear of failure, as well as formal institutions such as government support, taxes and bureaucracy, and entrepreneurial finance on innovation and established business ownership.
This study adopts a longitudinal research design based on panel data analysis using Global Entrepreneurship Monitor (GEM) indicators for 19 European economies over the period 2003–2024. The sample includes both EU member states and non-EU countries that are embedded within the broader European institutional space. To explicitly account for institutional heterogeneity, the empirical framework incorporates a binary EU membership dummy variable and interaction terms, allowing the effects of socio-cognitive factors and formal institutional factors to vary systematically between EU and non-EU contexts. To ensure robustness, multiple panel estimators are employed, including fixed-effects and random-effects models, Driscoll–Kraay robust standard errors and panel-corrected standard errors, thereby enabling consistent comparisons of results across alternative specifications and between baseline and extended models. All specifications include year fixed effects to absorb period-specific shocks common to all countries.
The findings indicate that government support, as a formal institution, has a strong and positive effect on innovation. In addition, perceived capabilities, as a socio-cognitive mechanism, have a positive and significant effect on established business ownership. The most striking finding is that entrepreneurial finance has a significant negative effect on established business ownership. The findings also show that these relationships are not homogeneous across countries. When examined through the lens of EU membership and interaction effects, the impact of both socio-cognitive factors and formal institutions systematically differs between non-EU and EU contexts, revealing the conditional and context-dependent nature of entrepreneurial outcomes.
This study advances prior GEM-based multi-level entrepreneurship research along four interrelated dimensions. Conceptually, it theorizes formal institutions as a conditioning structure that filters the translation of socio-cognitive factors into entrepreneurial outcomes, rather than treating cognition and institutions as parallel additive predictors. In terms of institutional conceptualization, it operationalizes formal institutions through three policy-relevant levers – government support, taxes and bureaucracy, and entrepreneurial finance – rather than through composite indices such as economic freedom or aggregated entrepreneurial context measures used in prior work. Outcome-wise, while prior multi-level research has primarily examined early-stage entrepreneurial entry, our study jointly analyzes innovation and established business ownership. These two outcomes represent conceptually distinct stages of the entrepreneurial process – novelty creation and the consolidation of ongoing entrepreneurial activity. Contextually, the non-EU/EU dimension is positioned not as a control variable but as an institutional-regime dummy variable that captures the depth of supra-national regulative integration, tested through systematic interaction effects in a 22-year panel of 19 European economies. Together, these elements offer a sharper theoretical positioning of how socio-cognitive factors and formal institutions interact across heterogeneous institutional regimes to shape distinct entrepreneurial outcomes.
