Choosing between the formal and informal economy: how do business managers in emerging markets decide?

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dc.contributor Kacmar, K. Michele
dc.contributor Jackson, William E.
dc.contributor Kacmar, Charles
dc.contributor Ramsey, Jase R.
dc.contributor.advisor Combs, James G.
dc.contributor.author Abi Aad, Amine A.
dc.date.accessioned 2017-03-01T17:09:21Z
dc.date.available 2017-03-01T17:09:21Z
dc.date.issued 2014
dc.identifier.other u0015_0000001_0001628
dc.identifier.other AbiAad_alatus_0004D_11982
dc.identifier.uri https://ir.ua.edu/handle/123456789/2082
dc.description Electronic Thesis or Dissertation
dc.description.abstract Why do managers in emerging markets conduct some activities in the informal economy and others in the formal economy when they have a choice? Using institutional economic theory, previous research shows that, at the country level, weak formal institutions create institutional voids that increase the transaction costs of using the formal economy. To evade high transaction costs, managers in emerging markets use the informal economy. However, previous research does not explain, at the firm level, why managers in emerging markets conduct some activities in the informal economy while conducting others in the formal economy. I theorize that, at the firm level, managers' social ties with formal institutions protect them against being singled out for enforcement and against potential opportunistic behaviors by business partners. In particular, opportunism, which increases transaction costs, might take place in the informal economy because contracting parties cannot be held legally accountable. That is, managers' social ties with formal institutions allow them to keep the transaction costs of using the informal economy lower than the transaction costs of using the formal economy for a specific activity. Moreover, I argue that not all managers who have social ties with formal institutions are prone to conduct more activities in the informal economy. In particular, based on regulatory focus theory, I argue that managers who have a promotion focus mindset are more prone to use their social ties with formal institutions to conduct activities in the informal economy. Using a sample of 206 Lebanese respondents, I developed two new scales: manager's social ties with formal institutions and manager's propensity to use informal economy. I then used these scales to empirically test my theory. The results of this study support my theory that managers who have social ties with formal institutions are more prone to conduct activities in the informal economy. However, the results of this study did not support the argument that managers who have a promotion focus mindset are more prone to use their social ties with formal institutions to conduct activities in the informal economy.
dc.format.extent 131 p.
dc.format.medium electronic
dc.format.mimetype application/pdf
dc.language English
dc.language.iso en_US
dc.publisher University of Alabama Libraries
dc.relation.ispartof The University of Alabama Electronic Theses and Dissertations
dc.relation.ispartof The University of Alabama Libraries Digital Collections
dc.relation.hasversion born digital
dc.rights All rights reserved by the author unless otherwise indicated.
dc.subject.other Management
dc.subject.other Economics, Commerce-Business
dc.title Choosing between the formal and informal economy: how do business managers in emerging markets decide?
dc.type thesis
dc.type text
etdms.degree.department University of Alabama. Dept. of Management and Marketing
etdms.degree.discipline Management
etdms.degree.grantor The University of Alabama
etdms.degree.level doctoral
etdms.degree.name Ph.D.


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