Embracing the Second Best?Synchronization of Reforms Rhythms, Slack, and Firm Performance

Abstract

We analyze the understudied impact of synchronization of reforms rhythms on the performance of transition economy firms. We argue that higher synchronization of reforms rhythms improves the firms’ performance due to timing synergies among the different reforms types. Additionally, we propose that excess high-discretion slack further strengthens the performance benefits from a higher synchronization of reforms rhythms because it allows the transition economy firms to more quickly adapt to their changing institutional environment. Thus, we extend the institution-based view of the firm by shifting its traditional focus on institutional differences across countries to a new research direction that accounts explicitly for the timing of implementation—concurrent or sequential—of the different types of reforms rhythms within a country over time. Our test on a sample of 430 firms from 13 transition economies during 1991-2009 supports our arguments.