International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Formalization and Technical Efficiency: Evidence from Small Enterprises in Kenya
Anthony Wambugu, Peter Kimuyu

Using a broader definition of formality than often found in the literature, we have identified female ownership, having either parents or siblings in business, better human capital attributes such as being more educated and having benefitted from business training, and firms size as robust predictors of formality status. Our findings also reveal that male-owned small firms are less likely to formalize after start- up as do firms owned by older persons and those who are more educated. There are also notable technical efficiency differences between formal and informal small firms, the later dominating lower levels of productivity. These findings concur with earlier ones that use more restrictive definitions of formality, and suggest difficulties in taking full developmental advantage of a private sector that is dominated by informal firms.

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