The role of institutional quality and industry dynamism in explaining firm performance in emerging economies

Abstract

Research Summary: This study explains how heterogeneity in firm competitiveness and performance in emerging economies is influenced jointly by the institutional quality of countries and interindustry variations in technological and market dynamism. The analysis of 12,888 firms from 16 emerging economies shows that while the performance advantages of institutional quality are strengthened for firms in technologically dynamic industries, the opposite pattern emerges in high market-dynamism industries. The study advances the institution-based view by explaining the mechanisms through which such effects occur and why two industry-specific boundary conditions (technological and market dynamism) influence differently the relationship between institutional quality and firm performance. Managerial Summary: This study investigates how the performance of firms in emerging economies is influenced by the quality of institutions in each country as well as by the technological and market dynamism in the industry in which each firm operates. To examine these relationships, the study analyzes a sample of 12,888 firms from 16 emerging economies. The results indicate that institutional quality enhances firm performance and that these positive effects are stronger in technologically dynamic industries than in industries that are less technologically dynamic. However, the opposite pattern of results emerges for market dynamism, indicating that the role of institutional quality in enhancing firm performance is weaker in industries that exhibit a high degree of market dynamism than in industries that are less volatile in market demand.