ABSTRACT:This paper proposes a conceptual framework on the role of formal and informal institutional factors at the sub-national level (e.g. city) in shaping the climate conducive for the growth and success of micro, small, and medium enterprises (MSMEs). Extant literature reveals that institutional analyses tend to focus on either formal or informal institutions, in narrow and fragmented ways. Likewise, previous studies focused their analysis on national or country-wide institutional frameworks, ignoring the institutional heterogeneity of regions and cities within a given country. This study attempts to develop an integrated institutional approach at the city-level and stretch the conceptual boundaries of formal and informal institutions as they shape the local entrepreneurial climate -the set of tangible and intangible institutional factors that are shaping the performance of entrepreneurial firms in a geographically and politically defined area such as a city.

<p>The thesis of this study is that perceptions of formal and informal institutions permeating the business environment in a city in an emerging economy have significant influence on the strategic posture of micro, small and medium enterprises (MSMEs); and that strategic posture is viewed to have significant influence on the firms' overall organisational performance. The study emphasises the mediating role of strategic posture, being the conduit through which perceptions of sub-national institutions exert their influence on organisational performance. Institutional theory, which considers institutions as 'the rules of the game' that govern human interaction, serves as the study's theoretical foundation. An extensive review of the literature was undertaken in the areas of institutional theory, strategic management, organisational performance, investment or business climates, MSME/entrepreneurial development, decentralisation and local economic development at the city level. The study adopts an empirical-deductive research design through which a survey generated a total sample of 900 MSMEs located in two cities in the south-eastern region of the Philippines. Hierarchical multiple regression modelling, using ordinary least squares method with confirmatory robust technique, was applied to test the hypotheses. Results suggest that all of the five formal institutions and two of the five informal institutions had positive relationships with an entrepreneurial strategic posture, which in turn, was shown to be positively associated with higher levels of product/service, strategic and financial performance. Moreover, strategic posture was shown to partially mediate the relationships between three formal institutions and two facets of organisational performance. However, when the five formal institutions and five informal institutions were aggregated into two sets of indices, mediation analysis revealed that the index of formal institutions - product/service performance relationship was partially mediated by strategic posture. The index of formal institutions - strategic performance relationship was shown to be fully mediated by strategic posture. On the other hand, the index of informal institutions - product/service performance relationship was shown to be fully mediated by strategic posture. Overall, the empirical results offer acceptable level of support to the main thesis of the study.</p>