On The Edge of Noncompliance: How Firms Approach Institutional Pressure through Regulatory Tolerance

The literature on regulatory compliance and entrepreneurship broadly agree that entrepreneurs have agency in the compliance process. However, there is little scholarly research on how entrepreneurs who are dependent on their constituents for resources and other support, can actively influence the enforcement of regulation. Many enforcement and compliance studies have overlooked the ways smaller entrepreneurs work with authorities to advocate for regulatory concessions. This paper explores how formally registered entrepreneurs in developing economies reduce regulatory pressures on their venture by encouraging enforcement authorities to tolerate non-compliance. Through a qualitative research approach, we extend previous research investigating entrepreneurs’ strategic responses to institutional pressures. This topic is particularly salient because inconsistent enforcement of regulations is a prevalent phenomenon in developing economies where entrepreneurs tend to directly work with enforcement agents to minimize costly institutional pressures. We identify and analyze the mechanism through which entrepreneurs anticipate and strategize to influence enforcement authorities to ignore or tolerate non-compliance of the regulatory guidelines they are tasked to uphold. This study is particularly relevant in the context of the renewed interest in the understanding of the interplay between regulatory institutions and entrepreneurial ventures in developing economies.