Business Ties, National Institutions, and Firm Performance: An Abstract

Abstract

A firm’s relationships with business partners (distributors, suppliers, strategic partners) are critical in predicting firm performance (Samaha et al. 2014). There is, however, a lack of understanding of whether and how the impact of such business ties on firm performance varies across a range of levels of institutional variables. The reason for this shortfall in knowledge is that studies which investigate the impact of business ties on business outcomes are based on samples of firms from one country (or two, at most). This constitutes a critical problem for theory development as scholars have stressed the importance of national-level institutions in shaping the impact of resources on firm performance. Specifically, resources that are valuable, rare, and difficult to imitate in one context may turn out to be non-valuable, abundant, and easy to imitate in other contexts (Brouthers et al. 2008). To address this critical shortfall in knowledge this study develops and tests a multilevel model of the link between business ties and business performance, which examines the interplay among firm-level business ties and national-level institutional variables in predicting firm level profit performance. Specifically, the study examines two of Hostede’s (2001) cultural dimensions, namely power distance and uncertainty avoidance, as well as government decision-making effectiveness as moderators of the relationship between business ties and performance. Findings from a multi-country sample show that the positive impact of business ties on performance is weaker in countries with greater levels of power distance. In addition, business ties are very beneficial for performance in countries where effectiveness of government decision-making is low. However, the positive impact of business ties on performance is hindered as government decision-making effectiveness increases and is even negative in countries that have highly effective governments. Therefore, a firm’s investment in business ties should be revisited over time to guarantee that the firm maintains a fit between its level of business ties and the characteristics of the institutional contexts in which it operates.