Regulatory Burden, Rule of Law, and Entry of Strategic Entrepreneurs: An International Panel Study

Entry into entrepreneurship is a strategic act for individuals who seek an optimal way to exploit their human, social, and financial capital. Trade-offs associated with this choice are influenced by institutional conditions. We use signalling theory, employment choice theory, and theory on strategic entry to develop hypotheses on the effect of business regulations and rule of law on strategic and non-strategic entrepreneurial entry. Analysing a six-year panel of 54 countries, we find lighter burden of regulation associated with a higher rate and relative prevalence of strategic entrepreneurial entry. Rule of law moderates this effect such that regulation has a significant effect on strategic entry only when rule of law is strong. These findings are robust against alternative proxies. Implications are drawn for prospective entrepreneurs, existing organizations, policy, and further research.