The primary focus of this study is on informal entrepreneurship, which has emerged as a significant sector in addressing unemployment and providing income for practitioners, particularly in a developing economy such as that of Nigeria. The study aims to analyse the influence of business formalisation status (delayed formalisation and continued informality) on the performance of micro, small and medium enterprises (MSMEs) in Nigeria, employing the lenses of liability of newness and institutional theories. Additionally, it aims to assess the impact of formalisation status on MSMEs' capacity to secure external sources of finance. The research employed mixed-methods (quantitative and qualitative) techniques, surveying 572 informal and formal MSMEs in Lagos and Kano for the quantitative approach and generating qualitative data through one-to-one oral interviews with 40 MSMEs. The sample selection includes MSMEs operating in several sectors such as retail, wholesale, services, manufacturing, agribusiness, and education. The study employed generalised structural equation modelling (GSEM), specifically focusing on the Probit and Gaussian Identity types to analyse the quantitative data. At the same time, thematic analysis was used for the qualitative data. Both the quantitative and qualitative findings are consistent. The findings revealed that on average delaying formalisation by MSMEs has a significant negative impact both on their annual sales growth and employment growth, although the overall GSEM coefficient showed a significant impact only for annual sales growth. The study found that, overall, no significant impact on firm performance for MSMEs’ persistence in informality exists; however, average predicted margins reveal a significant detrimental impact on annual sales growth. Furthermore, the study found evidence that informal MSMEs have a lower likelihood of accessing external funding; however, delaying this formalisation to later years of operation could be beneficial as the MSMEs can establish themselves without incurring the expenses and complying with the regulatory obligations associated with formalisation. Overall, the findings in this study, despite institutional and regulatory weaknesses in the study environment, seem to provide empirical support to the liability of newness theory that views informal enterprises as lacking survival capacity compared to their formal counterparts. The study concludes that strengthening regulatory institutions may mitigate the apparent obstacles to newness that are prevalent in the business environment, impacting the performance of MSMEs in Nigeria. The study, therefore, suggests that smoothing and digitalising the registration process to facilitate the formalisation of MSMEs, providing adequate sources of finance to support start-ups and the relevant infrastructure to promote the activities and sustainability of MSMEs in Nigeria could decrease the proliferation of unprofitable informal firms and enhance private sector growth in Nigeria.