Bringing institutions into performance persistence research: exploring the impact of product, financial, and labor market institutions
Author: Chacar, Aya S. ; Newburry, William ; Vissa, BalagopalINSEAD Area: Entrepreneurship and Family EnterpriseIn: Journal of International Business Studies, vol. 41, no. 7, September 2010 Language: EnglishDescription: p. 1119-1140.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: Past studies of performance persistence implicitly assume that the national institutional environments of firms are homogenous. This study challenges this assumption, proposing that a firm’s home country institutions matter. We focus on the impact of formal institutions in the product, financial and labor markets and argue that they impact performance persistence in two ways. First, national institutions affect the size of exchange partners’ pools. Second, national institutions define the type of exchanges that are allowed and condoned. Ultimately, these restrictions affect competitive intensity among firms and firm performance persistence. For example, antitrust laws, a product market institution, are designed to prevent collusion among firms, and are likely to increase competitive intensity and eventually decrease performance persistence. Similarly, unskilled labor market flexibility, a labor market institution, reduces legal constraints imposed on residual claimants (managers and owners) to take necessary actions to maintain or enhance profitability, and thus sustain competitiveness over a longer time period. Using data for 10,000 firms from 33 countries over a ten-year time frame, we show that antitrust law strength and unskilled labor market flexibility impacted performance persistence of both MNCs and domestic firms as predicted. The impact of other institutional factors differed between MNCs and domestic firms.| Item type | Current location | Call number | Status | Date due | Barcode | Item holds |
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Past studies of performance persistence implicitly assume that the national institutional environments of firms are homogenous. This study challenges this assumption, proposing that a firm’s home country institutions matter. We focus on the impact of formal institutions in the product, financial and labor markets and argue that they impact performance persistence in two ways. First, national institutions affect the size of exchange partners’ pools. Second, national institutions define the type of exchanges that are allowed and condoned. Ultimately, these restrictions affect competitive intensity among firms and firm performance persistence. For example, antitrust laws, a product market institution, are designed to prevent collusion among firms, and are likely to increase competitive intensity and eventually decrease performance persistence. Similarly, unskilled labor market flexibility, a labor market institution, reduces legal constraints imposed on residual claimants (managers and owners) to take necessary actions to maintain or enhance profitability, and thus sustain competitiveness over a longer time period. Using data for 10,000 firms from 33 countries over a ten-year time frame, we show that antitrust law strength and unskilled labor market flexibility impacted performance persistence of both MNCs and domestic firms as predicted. The impact of other institutional factors differed between MNCs and domestic firms.
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