On the importance of a motivational agency variable: Being a formal business in developing countries is only helpful for growth if business owners show a high degree of personal initiative

Abstract

This article advances the understanding of when and how formal status of small-scale entrepreneurs can contribute to higher growth in comparison to their informal counterparts. Our integrative framework suggests that both formal status and personal initiative (PI) behavior have a common pathway to predict firm growth. More importantly, formal firms improve their growth perspectives only if the entrepreneurs show a high degree of PI. The integrative framework was tested using longitudinal data with 2 measurement points with a total of 190 formal and informal entrepreneurs in the Sub-Saharan African country of Zimbabwe. Results show that both formal status and PI have indirect effects on firm growth through available resources. Further, PI has a dual-path moderating effect on the indirect effect of formal status to firm growth such that the indirect effect of formal status on firm growth via available resources is strongest when entrepreneurs have high PI, but there is no indirect effect when PI is low. Our research shows the importance of considering the interplay of institutional and psychological factors for explaining firm growth in developing countries. (PsycINFO Database Record (c) 2019 APA, all rights reserved).