Institutional drivers of high-growth firms: country-level evidence from 26 transition economies

Abstract

High-growth firms (HCF) represent a highly desirable subset of firms, which provide disproportionate economic gains, and greater insight into their determinants which is of interest to policymakers, scholars and business owners. We contribute to the literature on HGFs, which is largely absent of cross-national institutional studies, by examining the institutional conditions driving HGFs in 26 transition countries over a long period comprising three panels between 1998 and 2009. Using an institutional hierarchy approach, we test for the influence of formal and informal institutions on HGF prevalence in countries. Our analysis relies first on a principal component analysis to identify institutional factors. Second, we use GLS estimation to test the influence of these three factors on HGF prevalence in a country, followed by a robustness check. Our results show that interaction effects, rather than direct effects, are useful in explaining systematic variations in HGFs prevalence in transition economies. We find that the interaction between formal and informal institutions positively influences HGFs. Further, we find that in fast-reforming transition economies, more burdensome formal institutions discourage HGFs but in slowreforming transition economies, informal institutions encourage HGFs.

Explaining individual- and country-level variations in unregistered employment using a multi-level model: evidence from 35 Eurasian countries

“…complementing) or undermining (i.e. substituting) informal institutions Tonoyan, Strohmeyer, and Habib 2010;Krasniqi and Desai 2016;Hashi and Krasniqi 2011). Informal institutions can complement formal institutions if they create incentives to comply with the formal institutions, thereby addressing problems of social interaction and coordination and enhancing the efficiency of formal institutions (Baumol 1990;North 1990).…”

“…including the influence of tax morale (as a proxy indicator of the degree of institutional asymmetry), which is becoming a very popular strand in recent research (Krasniqi and Desai 2016;Williams and Krasniqi 2017, Williams and Martínez 2014, Williams and Horodnic 2017b.…”

Suboptimal Size: Factors Preventing the Growth of Russian Small and Medium-Sized Enterprises

“…The aforementioned determinants, both demand and supply side, are relevant for all countries, however, in transitioning economies, their impact on growth and sometimes the vector of a business's development is determined by the features of the institutional environment. The body of empirical research on SME performance in developing economies found a robust relationship between firm performance and the quality of institutions [Aidis et al, 2008;Molz et al, 2009;Blagojevic, Damijan, 2013;Sharafutdinova, Kisunko, 2014;Yukhanaev et al, 2015;Volchek et al, 2013a,b;Wang, You, 2012;Krasniki, Desai, 2016;Welter, Smallbone, 2011]. However, the mechanism behind their interactions remains poorly studied.…”

“…Economies that did not manage to develop according to the Western model must operate under an alternative informal institutional network [Smallbone, Welter, 2010], which is prone to rent-seeking, shadow schemes and similarly, tends to incentivize sub-optimal behavior among firms [Golikova, Ermilova, 2006;Sharafutdinova, Kisunko, 2014]. As a result, a discussion of a firm's aspirations for growth, scale of production and performance in transitioning economies without recourse to a study of institutional issues is liable to be incomplete [Aidis et al, 2008;Aidis, 2015;Welter, Smallbone, 2011;Smallbone et al, 2014;Krasniki, Desai, 2016;Wang, You, 2012]. Moreover, an institution-based study has become the main theoretical framework for business research on emerging economies and researchers tend to explore the interplay of formal and informal institutions at multiple levels of analysis [Thorsten et al, 2005;Meyer, Peng, 2005Estrin et al, 2013].…”

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“…The aforementioned determinants, both demand and supply side, are relevant for all countries, however, in transitioning economies, their impact on growth and sometimes the vector of a business's development is determined by the features of the institutional environment. The body of empirical research on SME performance in developing economies found a robust relationship between firm performance and the quality of institutions Molz et al, 2009;Blagojevic, Damijan, 2013;Sharafutdinova, Kisunko, 2014;Yukhanaev et al, 2015;Volchek et al, 2013a,b;Wang, You, 2012;Krasniki, Desai, 2016;. However, the mechanism behind their interactions remains poorly studied.…”