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Market entry of firms with different legal forms: an empirical test of the influence of institutional factors

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Abstract

Drawing upon institutional theory we develop a conceptual model and investigate the determinants of market entry for worker cooperatives, publicly traded and limited-liability companies. Our results show that formal institutional conditions (i.e., mercantile legislation) influence the start-up choice of entrepreneurs regarding the legal form of their new venture. In addition, we take into account the influence of informal institutional conditions (i.e., local corporate culture) on the market entry rate of firms with different legal structures. Findings show that, while market entry is sensitive to the general economic climate, entry rates of firms with a different legal structure respond differently to the same economic conditions.

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Notes

  1. We do not take into account the plausible effect of other influential factors such as the human capital of entrepreneurs and organizational factors because these factors fall out of the scope of this study.

  2. An industry may be considered concentrated if the total or a large amount of industry revenues is generated by a small or reduced number of firms.

  3. Note that a favorable tax incentive system has been related to the propensity for new firm creation (Harhoff, 1998).

  4. This includes the registration in the Registro Mercantil Central, Registro Mercantil Provincial, taxes, and lawyer expenditures. Note that the start-up process can be cut back to a period of 3 to 7 days when the paperwork is done through the Internet.

  5. The number of venture closures in that period amounts to about 198,000 firms.

  6. See Kremer (1997) and Podivinsky and Stewart (2007) for a discussion of why there are relatively few worker cooperatives.

  7. According to the data supplied by EUSTAT in year 2000 the 1% of establishments of Gipuzkoa were worker cooperatives, while this percentage was only 0.7% for Bizkaia.

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Authors and Affiliations

  1. Department of Economics and Management, Basque Institute of Competitiveness, University of Deusto, Mundaiz 50, Donostia, 20.012, Spain

    Saioa Arando & Iñaki Peña

  2. Rotterdam School of Economics, Centre for Advanced Small Business Economics, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR, Rotterdam, The Netherlands

    Ingrid Verheul

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  1. Saioa Arando
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Correspondence to Saioa Arando.

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Arando, S., Peña, I. & Verheul, I. Market entry of firms with different legal forms: an empirical test of the influence of institutional factors. Int Entrep Manag J 5, 77–95 (2009). https://doi.org/10.1007/s11365-008-0094-z

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