Innovation in emerging markets: the length of nonregistration

Purpose This paper aims to explore the independent and joint effects of duration of informal operation and corruption on new product introduction in institutionally constrained developing economies. Design/methodology/approach Drawing on anomie theory and the attention-based view, the author analyzes data from 71,110 firms across 136 developing countries. The main method of the study is the hierarchical regression to account for the multiple levels of the study’s data. The propensity score matching is used in the robustness check to address the potential endogeneity of the data set. Findings The results suggest that under conditions of weak governance and market imperfections, firms can leverage their experience prior to formalization to gain advantages in the introduction of new products. However, the benefits materialize only until an optimal number of years (turning point) is reached. In addition, the author also shows corruption as an effective market strategy informal firms can use in the new product development. Research limitations/implications This study relies on the cross-sectional data set from the World Bank, which may not fully capture the variety and dynamics of formalizations. Future longitudinal studies could explore the temporal evolution of informal years–corruption interactions. Practical implications This paper shows nonregistration and corrupt practices are both coping mechanisms that arise from institutional voids to improve performance. Efforts to lower the costs of formalization or diminish reliance on corruption may also need to account for the livelihood strategies of nonregistered firms in emerging economies to avoid displacing vulnerable entrepreneurs. Originality/value This study provides a stylized fact that informal experience can provide firms with unique benefits that help them introduce new products and improve their performance later when they become formalized, offering new insights into the interaction between informal years and corruption. It contributes to entrepreneurship literature and expands on anomie theory and the attention-based view.