The role of trust in government and institutional environment in future business climate

Abstract

Though numerous studies have focused on the relationship between institutional environment shape entrepreneurship, yet it is not clear enough the effects of institutional constraints and institutional trust on future business climate. This study aims to investigate these relationships in the context of a transition country. The research combines two perspectives: institution theory and institutional trust. The data are collected using a face-to-face survey. Three ordinal regressions were performed in a dataset of 393 small and medium-sized enterprises from Albania. The results contribute into understanding the nature of entrepreneurship in a transition setting. After controlling for firm characteristics, analyses revealed that future business climate is negatively influenced by legal environment-related constraints, and positively by trust in government. Thus, favourable business climate can be achieved by applying not heavily business legislation and regulation framework, and by building trust in institution. This paper offers insights for scholars studying entrepreneurship and institutional environments. Copyright © 2021 Inderscience Enterprises Ltd.