Publication – Stability vs. Flexibility: The Effect of Regulatory Institutions on Opportunity Type

Publication: Stability vs. Flexibility: The Effect of Regulatory Institutions on Opportunity Type

ABSTRACT: How entrepreneurial opportunities are formed and exploited depends upon the institutional environment in which they are embedded. The varying amounts of risk and uncertainty across and within heterogeneous institutional environments have important implications for the types of opportunity developed. While the international business and entrepreneurship literatures consider the effect of environmental risk and uncertainty on firms, risk and uncertainty are often treated as interchangeable or synonymous, and rarely are both considered to be present together. To address this, we develop a new theoretical model based on institutional economics, describing how institutional arrangements promoting stability – thus supporting an entrepreneur’s ability to assess risk – will lead to more imitative opportunities, while institutions promoting flexibility – thus supporting an entrepreneur’s ability to respond to uncertainty by iterating – will foster more innovative opportunities. We test this framework using crossnational data across 40 countries from the GEM survey, finding that institutional arrangements that promote stability do lead to more imitation, while institutions that promote flexibility foster more innovation. By treating risk and uncertainty as distinct constructs, our study makes theoretical contributions to research on institutional environments and opportunity types, with implications for future research on subsidiary initiatives, the evolution of MNEs, and born-global firms. Journal of International Business Studies (2017).

Young, S. L., Welter, C., & Conger, M. 2017. Stability vs. flexibility: The effect of regulatory institutions on opportunity type. Journal of International Business Studies, 49(4), 407-441..