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Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries

Author

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  • Commander, Simon

    () (IE Business School, Altura Partners)

  • Svejnar, Jan

    () (Columbia University)

Abstract

We analyze a large stratified random sample of firms that provide us with measures of performance and each firm’s top manager’s perception of the severity of business environment constraints faced by his/her firm. Unlike most existing studies that rely on external and aggregated proxy measures of the business environment, defined to include legal and institutional features, we have information from each surveyed firm. Specifically, we use the 2005 and 2002 Business Environment and Enterprise Performance Survey (BEEPS) to assess the effect on performance of ownership, competition, export orientation and the business environment of the firm. We employ a variety of approaches to deal with the problem of omitted variables, errors in variables and endogeneity that plague studies in this area. We find that foreign ownership and competition have an impact on performance – measured as the level of sales controlling for inputs. Export orientation of the firm does not have an effect on performance once ownership is taken into account. When we analyze the impact of perceived constraints, we show that few retain explanatory power once they are introduced jointly rather than one at a time, or when country, industry and year fixed effects are introduced. Indeed, country fixed effects largely absorb the explanatory power of the constraints faced by individual firms. Replicating the analysis with commonly used country-level indicators of the business environment, we do not find much of a relationship between constraints and performance. Our analysis brings into question an important part of the conventional wisdom in this area. It indicates that country fixed effects, reflecting time-invariant differences in the business environment but also other factors, matter for firm performance, but that differences in the business environment observed across firms within countries do not. Moreover, the limited firm- and country-level variations in the business environment over time do not appear to affect performance either. This suggests that the effect of business environment on performance and the analysts’ ability to identify this effect are more limited than has been assumed to date.

Suggested Citation

  • Commander, Simon & Svejnar, Jan, 2007. "Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries," IZA Discussion Papers 2637, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2637
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    Cited by:

    1. Mitra, Pradeep & Muravyev, Alexander & Schaffer, Mark E, 2008. "Convergence in Institutions and Market Outcomes: Cross-Country and Time-Series Evidence from the BEEPS Surveys in Transition Economies," IZA Discussion Papers 3863, Institute for the Study of Labor (IZA).
    2. Tidiane Kinda & Patrick Plane & Marie‐Ange Véganzonès‐Varoudakis, 2011. "Firm Productivity And Investment Climate In Developing Countries: How Does Middle East And North Africa Manufacturing Perform?," The Developing Economies, Institute of Developing Economies, vol. 49(4), pages 429-462, December.
    3. Peter Wysocki, 2011. "New institutional accounting and IFRS," Accounting and Business Research, Taylor & Francis Journals, vol. 41(3), pages 309-328, August.
    4. Mai Nguyen & Marie-Ange Veganzones-Varoudakis, 2017. "Investment climate, outward orientation and manufacturing firm productivity: New empirical evidence," Working Papers halshs-01618733, HAL.
    5. Tatiana Varcholova & Stela Beslerova, 2013. "Ownership Structure And Company Performance – Research And Literature Review," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 9(2), pages 24-33, October.
    6. Sergio Alessandrini, 2014. "Employment creation through inward FDI in the EMFTA and employment linkages within sectors," Chapters,in: The Economic and Political Aftermath of the Arab Spring, chapter 3, pages 79-105 Edward Elgar Publishing.
    7. repec:rze:efinan:v:9:y:2012:i:2:p:24-33 is not listed on IDEAS

    More about this item

    Keywords

    firm performance; productivity; competition; institutions; business environment; export orientation; subjective data; firm ownership;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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