Populism, cultural tightness, and informal venture entry

Abstract

This article examines how populist rhetoric and cultural tightness shape informal venture entry. We argue that populist rhetoric by national leaders, invoking the “will of the people” and directed against the “corrupt elite,” undermines trust in formal institutions and generates institutional uncertainty that pushes entrepreneurs toward informality. We further argue that cultural tightness moderates this relationship in a counterintuitive way. Cultural tightness typically enforces low tolerance for deviance and strong expectations of compliance; however, when populist rhetoric erodes confidence in democratic institutions, these same normative pressures likely heighten entrepreneurs' sensitivity to institutional uncertainty, amplifying the perceived risks of formal engagement. We theorize how informal venture entry emerges as a strategic response to populist rhetoric and test our framework using a cross-country dataset of 10,474 entrepreneurial ventures across developed and developing economies. Our results show that populist rhetoric increases the odds of informal venture entry and that this effect is magnified in culturally tight societies. We complement these findings with interviews from Nicaragua, a high-populism, tight-norm context, which illustrate entrepreneurs' lived experiences and provide ecological validity for our statistical results. By integrating institutional theory, political discourse, and cultural psychology, this study advances the understanding of how political forces shape informal entrepreneurship.