Why Do Businesses Fail? An Institutional Anatomy of Business Failure

A variety of formal and informal institutional environments can influence business failure. The UNSDG goal 16 emphasizes having strong institutions across all sectors of a system. Pinpointing the institutional weaknesses that may lead to business failure, therefore, has important academic and policy implications. However, investigation regarding the interrelationship between formal and informal institutional environments on business failure remains an uncharted territory, which the present study capitalizes on. Using a country-level panel data analysis, the present study investigates the direct effect of weak formal institutions (political and economic) on failure of firms. The study also explores the moderating role of cultural norms between a fragile formal institutional environment and business failure. Finally, theoretical implications, in light of the institutional theory, as well as practical implications for business managers and policymakers are discussed