This study explains how the informal sector impacts deal completion and the contingent roles of formal institutions, infrastructure and major restructuring. Using institutional complexity theory, this study aims to propose a new link between the informal sector and deal completion that emerges through the decreasing transaction cost of emerging markets.
The authors acquire deal-level data from the China Stock Market and Accounting Research Database (CSMAR) and national-level data from the World Bank Enterprise Survey (WBES). CSMAR includes full information on listed Chinese firms and is one of the most frequently used databases for research in the Belt and Road Initiative context. WBES provides data on the informal sector, formal institutions and infrastructure in 154 countries by administering a series of surveys to enterprises, and these data have been used in a few IB studies.
Data from a longitudinal sample reveal the positive effects of the informal sector on deal completion. The findings also show that formal institutions, infrastructure and major restructuring weaken this positive relationship.
This research has several implications for CEOs, top management teams (TMTs) and managers of emerging firms. First, the findings may reshape CEO entry strategies in emerging markets. Second, the findings indicate that the strategic collaboration of the TMT could maximize the advantages of the informal sector. Third, the strategic collaboration between the CEO and the TMT is based on managers whose work includes communication with the informal sector.
This investigation seeks to advance the understanding of sector-level informality and its impact on cooperative organizational response. This study deepens the understanding of institutional complexity in the interaction between the informal sector and formal institutions.
