Do entrepreneurial business and political connections lead to greater firm performance? Exploring informal-sector micro-enterprises in Sri Lanka

This study examines the direct and indirect effects of informal-sector micro-entrepreneurs’ political and business connections on their self-efficacy and firm performance via the mediating role of perceived support from the institutional environment in an emerging economy, Sri Lanka. The findings using matched survey data from 635 entrepreneurs and their case officers reveal that micro-entrepreneurs’ utilization of business ties and political ties impacts firm performance through the mediated role of the perceived support from the regulatory and cognitive environments and self-efficacy. We argue that, for informal-sector micro-entrepreneurs, their business and political connections provide a crucial link to the formal institutional environment, thereby increasing their self-efficacy and performance.