Our qualitative research shows that when making decisions about informality, entrepreneurs in emerging economies purposefully navigate between the enabling and constraining rules of the macro institutional environment and the norms of the meso institutional environment. We show that: (1) informality is a multidimensional continuum along which path to formalization unfolds; (2) as entrepreneurs grow more successful they become simultaneously more attuned to the countervailing constraints of both the macro and meso institutional environments; and (3) informal firms and formal firms weave together an exchange system that legitimizes the persistence of informality. In the context of informality, meso institutions serve as the connective tissue which cross-link levels of the environment and shape the context in which entrepreneurs make decisions.

Research summary: We integrate research on entrepreneurial orientation and new venture legitimacy. To create value from an entrepreneurial orientation, firms need to possess necessary resources and capabilities, which new ventures often lack due to their liability of newness. We posit that legitimation helps overcome these constraints by enabling new ventures to acquire necessary resources and develop essential capabilities, and argue that entrepreneurial orientation and legitimation jointly enhance new venture performance. We analyzed data on 149 new ventures and found support for this argument. This study opens new research avenues by extending and incorporating explanations and predictions of entrepreneurial orientation and legitimation, two areas that largely have been considered as independent of each other.Managerial summary: In the absence of a clear connection between legitimacy and economic returns, entrepreneurs and managers may not give strategic priority to legitimation. We find that new ventures with an entrepreneurial orientation as demonstrated by innovative, proactive, and risk-taking decisions and behaviors can achieve superior performance if they also actively undertake legitimation efforts to meet stakeholders' cognitive, regulative, and normative expectations. This study suggests that neglecting legitimation as an important competitive tool may be a greater mistake than previously has been realized, especially for new ventures with an entrepreneurial orientation.

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