LAUSR

Despite the depiction of decisions to formalize informal firms as rational and ethical, many entrepreneurs in developing countries continue to operate informally regardless of its perceived illicit status. While existing research on why entrepreneurs choose informality emphasizes the economic costs and benefits of such decisions, this often overlooks the realities of the informal economy and the constraints which marginal populations—particularly women—face. In this paper, we use institutional theory and sensemaking to understand the experiences of women in the informal economy and what formalization means to them. We use a qualitative approach to collect data from 90 women entrepreneurs in three different cities in Nepal. In our findings we identify three groups of women with distinctive understandings of formalization—business sustainability, livelihood sufficiency and strategic alignment. Their interpretation of formalization reveals the complex, dynamic, and cyclical nature of formalization decisions. Decisions are also guided by the optimization of social and emotional logics, whereby formalization is conceived differently depending on different life stages, experiences within the informal economy and wider socio-cultural contexts. Our findings highlight the ethical implications of formalization where being a ‘good citizen’, rather than complying with formal rules and regulations, is about attuning to and fitting in with socially prescribed roles. Our research provides a nuanced view of formalization decisions, challenging idealized and ethical notions of formalization as a desired end state.