Political environment, employee tenure security and firm performance in middle-income economies

Abstract

PurposeThe study investigates the effect of political instability and employee tenure security on the performance of firms in middle-income economies (MIEs) after controlling for the influence of corruption, international quality certification, external auditor services and firm age. It examines whether ownership and sector effects matter in the explored relationships.Design/methodology/approachThe study adopts the generalized method of moments estimator and collects firm-level cross-sectional data from 77 MIEs.FindingsThe evidence shows that political uncertainty, employee tenure security and firm age negatively impact firm performance. Also, external quality assurance mainly improves firm performance. Additionally, foreign-owned firms benefit from corruption more than their domestic counterparts. Moreover, there are ownership and sector effects in the firm performance drivers.Practical implicationsThe findings suggest the need for MIE firm managers to implement policies and programs to improve permanent employees' efficiency, commitment and honesty. Policy makers and political actors must work toward a stable political environment in MIEs. The policy must also focus on at least minimizing corruption.Originality/valueThe study shows the contributions of employee tenure security, political instability and corruption to the performance of MIE firms. It documents sector and ownership effects in the factors influencing firm performance.