Evasive entrepreneurship: Circumventing and exploiting institutional impediments for new profit opportunity in an emerging market

Abstract

Evasive entrepreneurship (circumvention and exploitation of institutions by entrepreneurs) is a prevalent practice in many developing economies. Extant literature on the topic falls short of providing adequate theories to explain its triggers, mechanisms, and consequences. Leveraging extensive survey data from the World Bank, we used structural equation modeling to examine the relationship between evasive entrepreneurial behavior—tax evasion and bribery—and the relative payoff of such practices. Of the 2599 Nigerian entrepreneurs in our sample, the majority admitted to engaging in evasive entrepreneurship. The data suggest that institutional factors thought to constrain entrepreneurship in emerging markets are counter-intuitively perceived by founders as opportunities to earn large rents and improve firm performance. Our results emphasize the urgent need to eliminate institutional constraints that paradoxically enable the growth of evasive entrepreneurship in emerging economies. Our results also suggest that prevailing local conventions involving evasive behavior may motivate nascent entrepreneurs to imitate bribery and tax evasion, normalizing malfeasance as ‘best practice.’