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Determinants of informality in a group of microenterprises from Guayas-Ecuador

Abstract:

In this research, the determinants of informal practices of 41 family businesses were analysed and identified via comparing the data obtained by the owners’ interviews and diagnoses of the students in a financial analyst role. A finance class was developed in which an attempt was made to propose an initiative in which students fulfil the function of financial analyst to finally collect information about why family businesses decide to operate in the informal sector. The findings are: 1) informal small family enterprises believe that the taxes are ‘too high’; 2) entrepreneurs possess high margins of incomprehension of formal registration systems; 3) informal firms have disorganised balance sheets’ structure and the control of their accounts; 4) a large number of individuals considered to perform their activities with the objective of covering basic needs. In the context of informality, many businesses decisions are taken to carry out a subsistence activity, showing cases with low-margin of growth. This is an initial study that provides the insights, which could spur future research across other countries by using multiple methods.