For family businesses in the world’s poorest economies, formalization—registering with the government and paying taxes and fees—has been found to lead to better performance. However, formalization may also lead to unexpected negative consequences. Drawing on institutional logics and family embeddedness perspectives and using a sample of family businesses in Eswatini, we find an inverted U-shaped association between businesses’ degree of formality and child work. We find that child work increases, then decreases, as family businesses move from informal, to semi-formal, to formal status. We also explore how entrepreneurs’ gender and family business performance moderate this relationship.
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