Engagement in entrepreneurship after business failure. Do formal institutions and culture matter?

Abstract Despite the extensive literature on the relationship between entrepreneurship and institutions, there is limited knowledge of the relationship between institutions and engagement after failure. This study compares the entrepreneurial engagement of entrepreneurs who have recently experienced failure and individuals without entrepreneurial experience, emphasizing the interaction of government policies and programmes (formal institutions) and individualistic/collectivist cultures (informal institutions) with business failure and its impact on entrepreneurial engagement. We test our hypotheses using multilevel analysis on a large cross-sectional sample that combines individual-level data from the Global Entrepreneurship Monitor (GEM) database with country-level data from 49 economies. We provide evidence of selection bias for the entrepreneurial engagement of entrepreneurs after failures and of the role of culture as a significant aspect of re-entry into entrepreneurship. Therefore, our evidence helps reinforce the view that postfailure entrepreneurs are a special group of entrepreneurs and validates the contribution of institutional economic theory in explaining this phenomenon, especially the key role of informal institutions.