IDEAS home Printed from https://ideas.repec.org/a/voj/journl/v64y2017i4p383-400.html
   My bibliography  Save this article

Which Institutions Are Important for Firms Performance? Evidence from Bayesian Model Averaging Analysis

Author

Listed:
  • Jarko Fidrmuc

    (Corresponding author Henan University in Kaifeng, China; Zeppelin University in Friedrichshafen, Germany; Charles University in Prague, Institute of Economic Studies, Czech Republic; Kaunas University of Technology, Lithuania)

  • Svatopluk Kapounek

    (Mendel University in Brno, Czech Republic; Kaunas University of Technology, Lithuania)

  • Martin Siddiqui

    (Zeppelin University in Friedrichshafen, Germany)

Abstract

Using a rich dataset on individual firms in selected EU countries between 2005 and 2012, we document a surprisingly high share of assets tied in highly inefficient firms. Moreover, we discuss different channels through which institutions may affect firm financial developments and thus the long-run growth. Using Bayesian model averaging analysis, we discuss the importance of different types of economic, financial and political institutions. We show that high institutional quality improves the financial conditions of firms. However, too lax business regulations may worsen firms’ performance possibly due to excessive risk taking behavior.

Suggested Citation

  • Jarko Fidrmuc & Svatopluk Kapounek & Martin Siddiqui, 2017. "Which Institutions Are Important for Firms Performance? Evidence from Bayesian Model Averaging Analysis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(4), pages 383-400, September.
    • Handle: RePEc:voj:journl:v:64:y:2017:i:4:p:383-400
    as

    Download full text from publisher

    File URL: https://panoeconomicus.org/index.php/jorunal/article/view/433/415
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Heider, Florian & Ljungqvist, Alexander, 2015. "As certain as debt and taxes: Estimating the tax sensitivity of leverage from state tax changes," Journal of Financial Economics, Elsevier, vol. 118(3), pages 684-712.
    2. Friedrich Schneider, 2003. "The Development of the Shadow Economies and Shadow Labour Force of 21 OECD and 22 Transition Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(01), pages 17-23, February.
    3. Mojon, Benoit & Smets, Frank & Vermeulen, Philip, 2002. "Investment and monetary policy in the euro area," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2111-2129, November.
    4. Jean-Bernard Chatelain & Andrea Generale & Ignacio Hernando & Ulf von Kalckreuth & Philip Vermeulen, 2001. "Firm Investment and Monetary Policy Transmission in the Euro Area," Working Papers 0119, Banco de España.
    5. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
    6. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
    7. Qi, Yaxuan & Roth, Lukas & Wald, John K., 2010. "Political rights and the cost of debt," Journal of Financial Economics, Elsevier, vol. 95(2), pages 202-226, February.
    8. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    9. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, September.
    10. Sascha O. Becker & Katrin Boeckh & Christa Hainz & Ludger Woessmann, 2016. "The Empire Is Dead, Long Live the Empire! Long‐Run Persistence of Trust and Corruption in the Bureaucracy," Economic Journal, Royal Economic Society, vol. 126(590), pages 40-74, February.
    11. Hans Pitlik & Ludek Kouba, 2015. "Does social distrust always lead to a stronger support for government intervention?," Public Choice, Springer, vol. 163(3), pages 355-377, June.
    12. repec:ces:ifodic:v:1:y:2003:i:1:p:14567827 is not listed on IDEAS
    13. Jens Matthias Arnold & Andreas Worgotter, 2011. "Structural reforms and the benefits of the enlarged EU internal market: still much to be gained," Applied Economics Letters, Taylor & Francis Journals, vol. 18(13), pages 1231-1235.
    14. Giuseppe De Luca & Jan R. Magnus, 2011. "Bayesian model averaging and weighted-average least squares: Equivariance, stability, and numerical issues," Stata Journal, StataCorp LP, vol. 11(4), pages 518-544, December.
    15. Friedrich Schneider, 2003. "The Development of the Shadow Economies and Shadow Labour Force of 21 OECD and 22 Transition Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(1), pages 17-23, 02.
    16. Michael Dothan, 2006. "Costs Of Financial Distress And Interest Coverage Ratios," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(2), pages 147-162, June.
    17. Fotini Voulgaris & Athanasia Rizonaki, 2011. "On the relationship between systematic risk and financial and operating risk: the case of the Greek listed firms," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 13(3/4), pages 204-221.
    18. Dominykas Poderys, 2015. "Does Access to External Finance Affect Development of Small and Medium Enterprises and Economic Growth?," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 1(1), pages 43-53.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ichiro Iwasaki & Evžen Kočenda & Yoshisada Shida, 2022. "Institutions, financial development, and small business survival: evidence from European emerging markets," Small Business Economics, Springer, vol. 58(3), pages 1261-1283, March.
    2. Baumöhl, Eduard & Iwasaki, Ichiro & Kočenda, Evžen, 2019. "Institutions and determinants of firm survival in European emerging markets," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 431-453.
    3. Jarko Fidrmuc & Serhiy Moroz & Fabian Reck, 2021. "Regional risk-sharing in Ukraine," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 645-660, August.
    4. repec:zbw:bofitp:2020_025 is not listed on IDEAS
    5. The Nguyen Huynh, 2022. "Spatial effects of institutional quality on firm performance: evidence from Vietnam," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 36(2), pages 89-105, November.
    6. Svatopluk Kapounek, 2017. "The Impact of Institutional Quality on Bank Lending Activity: Evidence from Bayesian Model Averaging," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(5), pages 372-395, October.
    7. Svatopluk Kapounek & Jan Hanousek & František Bílý, 2022. "Predikční schopnost Altmanova Z-skóre evropských soukromých společností [Predictive Ability of Altman Z-score of European Private Companies]," Politická ekonomie, Prague University of Economics and Business, vol. 2022(3), pages 265-287.
    8. Jarko Fidrmuc & Serhiy Moroz & Fabian Reck, 2021. "Regional risk-sharing in Ukraine," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 645-660, August.
    9. Mehdi Rasouli Ghahroudi & Yasuo Hoshino & Ehsan Fakhraei, 2019. "Ownership Structure, Capital Structure, and Firm Survival," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(11), pages 1-19, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Svatopluk Kapounek, 2017. "The Impact of Institutional Quality on Bank Lending Activity: Evidence from Bayesian Model Averaging," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(5), pages 372-395, October.
    2. Fidrmuc, Jarko & Siddiqui, Martin, 2015. "Institutions and Creative Destruction in CEECs: Determinants of Inefficient Use of Assets," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113201, Verein für Socialpolitik / German Economic Association.
    3. Bill Francis & Eric Ofori, 2015. "Political regimes and stock market development," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 111-137, June.
    4. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    5. Rosa Capolupo, 2005. "THE NEW GROWTH THEORIES AND THEIR EMPIRICS, Discussion Paper in Economics, University of Glasgow, N. 2005-04 (http://www.gla.ac.uk/Acad/Economics," GE, Growth, Math methods 0506003, University Library of Munich, Germany.
    6. Leonardo M. Klüppel & Lamar Pierce & Jason A. Snyder, 2018. "Perspective—The Deep Historical Roots of Organization and Strategy: Traumatic Shocks, Culture, and Institutions," Organization Science, INFORMS, vol. 29(4), pages 702-721, August.
    7. Qi, Yaxuan & Roth, Lukas & Wald, John K., 2010. "Political rights and the cost of debt," Journal of Financial Economics, Elsevier, vol. 95(2), pages 202-226, February.
    8. Nunn, Nathan, 2014. "Historical Development," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 347-402, Elsevier.
    9. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    10. Haggard, Stephan & Tiede, Lydia, 2011. "The Rule of Law and Economic Growth: Where are We?," World Development, Elsevier, vol. 39(5), pages 673-685, May.
    11. Col, Burcin & Errunza, Vihang, 2015. "Corporate governance and state expropriation risk," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 71-84.
    12. Sha, Yezhou & Qiao, Lu & Li, Suyang & Bu, Ziwen, 2021. "Political freedom and earnings management," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    13. Julia Korosteleva & Colin Lawson, 2010. "The Belarusian case of transition: whither financial repression?," Post-Communist Economies, Taylor & Francis Journals, vol. 22(1), pages 33-53.
    14. Jakob Müllner, 2017. "International project finance: review and implications for international finance and international business," Management Review Quarterly, Springer, vol. 67(2), pages 97-133, April.
    15. Davide Cantoni & Franziska Kugler & Ludger Wößmann & Franziska Pfaehler, 2014. "Der lange Schatten der Geschichte: Mechanismen der Persistenz in der Wirtschaftsgeschichte," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 67(02), pages 13-22, January.
    16. Rosa Capolupo, "undated". "The New Growth Theoris and their Empirics," Working Papers 2005_4, Business School - Economics, University of Glasgow.
    17. Wenming Xu & Guangdong Xu, 2016. "Truth and Robustness in Cross-country Law and Finance Regressions: A Bayesian analysis of the Empirical “Law Matters†Thesis," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(6), pages 1-6.
    18. D'Souza, Juliet & Nash, Robert, 2017. "Private benefits of public control: Evidence of political and economic benefits of state ownership," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 232-247.
    19. Vasily Astrov & Mahdi Ghodsi & Vladimir Gligorov & Richard Grieveson & Julia Grübler & Sebastian Leitner & Robert Stehrer, 2016. "Monthly Report No. 11/2016," wiiw Monthly Reports 2016-11, The Vienna Institute for International Economic Studies, wiiw.
    20. Ashraf, Badar Nadeem, 2017. "Political institutions and bank risk-taking behavior," Journal of Financial Stability, Elsevier, vol. 29(C), pages 13-35.

    More about this item

    Keywords

    : Institutional quality; Insolvency; Inefficient firms; Bayesian model averaging;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:voj:journl:v:64:y:2017:i:4:p:383-400. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://panoeconomicus.org/index.php/jorunal/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ivana Horvat (email available below). General contact details of provider: https://panoeconomicus.org/index.php/jorunal/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.