Formal and Informal Institutional Constraints and the Performance of Firms in Developing Economies: The Case of Egypt

Abstract

The paper sets out to examine the effect of the interaction between the informal and formal institutional constraints on the investment performance of firms in Egypt. The paper endeavours to increase our understanding about the importance and the role of the institutional factors in business operations. The paper argues that the effect of the institutional factors on the performance of firms is contingent upon the quality and the level of compatibility between the formal and informal rules. The interaction between the formal and informal institutional frameworks determines the evolution of a system and how it works. The path of this evolution is sensitive to the quality of these two types of institutions. The main outcome of this study is that the performance of firms in developing countries is determined by a complex interaction of the formal and informal rules. Some theoretical and managerial implications are discussed.