Supply‐Induced Litigation and the Role of Informal Institutions

This paper accentuates the conviction that institutions play a significant role in SMEs internationalisation. Informal institutional mechanisms have been notable in localities in the African setting. However, most studies in business research have been focused on formal institutions. The role of informal institutions in the international performance of SMEs demands to be understood with more cases. This paper argues that the two dimensions of institutions do not work in isolation but complement each other to provide the desired results in SMEs' international performance. We analyse the complementation role of formal and informal institutions in the internationalisation of small exporting firms. This study is based on primary data collected through a survey of 134 small exporting firms from different sectors in Ghana and analysed with multiple regression in SPSS. Findings revealed that not every aspect of the informal institutional mechanism is relevant for superior firms' international performance. Formal institutions complement informal institutions in order to function effectively.

This paper accentuates the conviction that institutions play a significant role in SMEs internationalisation. Informal institutional mechanisms have been notable in localities in the African setting. However, most studies in business research have been focused on formal institutions. The role of informal institutions in the international performance of SMEs demands to be understood with more cases. This paper argues that the two dimensions of institutions do not work in isolation but complement each other to provide the desired results in SMEs' international performance. We analyse the complementation role of formal and informal institutions in the internationalisation of small exporting firms. This study is based on primary data collected through a survey of 134 small exporting firms from different sectors in Ghana and analysed with multiple regression in SPSS. Findings revealed that not every aspect of the informal institutional mechanism is relevant for superior firms' international performance. Formal institutions complement informal institutions in order to function effectively.

This paper argues that the role of informal institutions as well as formal ones is central to understanding the functioning of corporate governance. We focus on the four largest emerging economies: Brazil, Russia, India, and China—commonly referred to as the BRIC countries. Our analysis is based on the Helmke and Levitsky framework of informal institutions and focuses on two related aspects of corporate governance: firm ownership structures and property rights; and the relationship between firms and external investors. We argue that for China and some states of India, “substitutive” informal institutions, whereby informal institutions substitute for and replace ineffective formal institutions, are critical in creating corporate governance leading to enhanced domestic and foreign investment. In contrast, Russia is characterized by “competing” informal institutions whereby various informal mechanisms of corporate governance associated with corruption and clientelism undermine the functioning of reasonably well set-out formal institutions relating to shareholder rights and relations with investors. Finally Brazil is characterized by “accommodating” informal institutions which get around the effectively enforced but restrictive formal institutions and reconcile varying objectives that are held between actors in formal and informal institutions.

The importance of informal institutions in the logging industry has been analyzed. The relationship between informal and formal institutions of the forestry industry has been explained, and the role of informal institutions in correcting the dysfunctions in the formal system has been shown. The current issues of formal forest institutions and options for the government’s response to the abnormal situation have been considered, using the example of the Irkutsk Region forestry industry. The purpose of the study is to find real ways to reduce the level of informal institutions activity associated with their excessive influence on the logging industry economy. The object of the study is Russian logging industry. The subject of the study is informal institutions and changes in its place and role in the timber industry structure, as they are often destructive due to the weakness of formal decision tools. The system analysis methodology is used to study the formal and informal institution concepts in the logging industry. The study concluded that the use of informal institutions by formal systems provides them with tangible benefits and strengthens their position in the logging business. The regulation of the logging industry activity requires a systematic institutional approach combining legal changes considering the social and economic opportunities of the forest industry. However, reducing the informal institutions influence for human rights development is possible in the context of current forest industry regulations. The content of formal and informal forest institutions activities has been characterized, and it has also been established that their activities are interrelated.

Scholars of the developing world have driven a surge of interest in unwritten or informal institutions as determinants of political outcomes. In advanced industrial democracies, by contrast, informal institutions often remain consigned to the analytic margins. This article makes a case for greater attention to informal political institutions in established democracies, and it introduces a theoretical framework to support such analysis. Informal institutions, understood as the unwritten rules of political life, are seen to perform three functions: they complete or fill gaps in formal institutions, coordinate the operation of overlapping (and perhaps clashing) institutions, and operate parallel to formal institutions in regulating political behavior. These three roles of informal institutions are associated with different characteristic patterns of institutional stability and change. The article illustrates its theoretical framework with case studies from American politics, the subfield in which formal-institutional analysis has flourished most. These cases are the historical norm of a two-term presidency (a completing institution), the unwritten rules of the presidential nomination process (coordinating institutions), the informal practice of obstruction in the Senate (a parallel institution), and the normative expectation that presidents should address the public directly (which performs all three functions).

The chapter considers the role of informal institutions in shaping SOEs’ corporate governance. In their analysis the authors provide examples from a post-transitional economy of Poland, once a member of the Soviet Bloc and now a member of the European Union. In this particular country setting, differences between formal institutions, which can be changed rapidly and were once informal, tend to be path-dependent and are probably the easiest to see. In the chapter the authors propose an analytical framework based on Scott’s multilevel framework of institutions (Scott, 2001) and Grzymala–Busse’s (2010) division of the relationships between formal and informal SOEs institutions. The framework is based on two assumptions. First, the informal institutional mechanisms influence directly or indirectly their formal counterparts. This influence may be undermining, replacing, supporting, and competitive. Second, both kinds of mechanisms are affected by normative and cognitive institutions. The main conclusion of the chapter is that SOEs’ corporate governance systems are formed and determined not only by formal but also by informal institutions and by the relations between them.

Purpose. The purpose of the article is to defining the nature, types, and role of formal and informal insurance market institutions. Methodology of research. The methodological basis of the work has become a systematic approach to the study of the formation and functioning of formal and informal insurance market institutions; as well as a dialectical method of cognition and grouping to determine the types of formal and informal institutions that have formed and ensure the development of insurance relationships. Methods of induction and deduction have been used to generalize the essence and role of insurance market institutions under the provisions of economic theory and insurance business. The differences between formal and informal insurance market institutions have been established by a comparative method. To make theoretical generalizations, to form conclusions from the study, an abstract reasoning method has been used. Findings. The article presents the results of empirical analysis of formal and informal institutions, under the influence of which the insurance market has been formed and is currently functioning. Formal insurance market institutions are clearly defined, regulated by public protection mechanisms, and mandatory for all economic entities involved in the insurance process. Informal insurance market institutions are unwritten and undocumented norms and rules that shape the behaviour of economic entities of the insurance market regarding the creation, purchase and sale, and consumption of insurance services. Both formal and informal insurance market institutions should be divided into basic and specific ones, taking into account the peculiarities of the insurance market and the specifics of insurance relationships. Originality. Given the peculiarities of the insurance business, formal and informal insurance market institutions are clearly distinguished, with their subsequent division into basic and specific ones. Practical value. The results of the study can serve as a basis for further research in this area and will be useful for insurers, supervisory authorities, and other participants in the insurance market in terms of improving the quality of insurance services, identifying areas of the insurance market, and efficiency of its participants, which will increase confidence in the insurance market. Key words: institution, formal institution, informal institution, insurance market, basic insurance market institution, specific insurance market institution.

Institutions are rules of behaviour whose compliance is enforced by mechanisms of sanctioning. They are therefore an integral part of the incentive structure of an economy. Using the differentiation of North (1990), two kinds of institutions can be distinguished: formal and informal institutions. Formal institutions are written rules like constitutions, laws and contracts; informal institutions include non-codified behavioural rules like customs, traditions and internalised institutions. According to North there is a fundamental difference between the two kinds of institutions that is of major importance for the transition of economic systems: informal institutions are far more difficult to change than formal institutions. Processes of economic transition are characterized by fundamental changes of formal institutions: the institutions of a centrally planned economy have to be replaced by institutions of a market economy. But individuals tend to internalise institutions, therefore a further important question for the success of the process of transition concerns the role of informal institutions: How fast do the individual actors adapt their customary behaviour to the new formal institutions? In this regard North proposes: 'If individuals have been brought up with norms that eschewed competition and individual initiative, the incentive structure of market economies they will be hard put to adjust when the formal rules change.

Assuming the primacy of established patterns of bargaining over the formal ones, in transitional, unstable settings—well-known to the power-sharing systems—informal institutions can emerge as the preponderant rules of interaction. Yet, there is significant negligence in the power-sharing literature that should have been devoted to the informalities embedded in the political systems of divided societies. Filling in this gap, the paper analyses the creation, role and meaning of informal institutions in the consociational model. Using the case study of the Brčko District in Bosnia and Herzegovina and framework offered by Helmke and Levitsky (‘Informal institutions and comparative politics: A research agenda’, Perspectives on Politics, 4, 724–740, 2004), it claims that the presence of informal-corporate institutions is crucial for the functioning of its consociational system and necessary to accommodate the existing formal-liberal ones. The detailed case study analysis brings conclusions that could extend the current understanding of the power-sharing model and tackle the debate about liberal consociationalism being the preferred version of power sharing.

Immigration is a sensitive topic on the American political, social, and economic agenda. Globalization as well as the end of the Cold War have meant that people are on the move worldwide as never before. Millions of people from poor countries migrate to richer ones to provide better lives for themselves and their families through legal and illegal channels. Heated debates surround this subject. A dramatic divide persists between proponents, who equate immigration policy with civil rights, and opponents, who cite the burden of illegal immigration on public education and public welfare systems. The author argues that informal institutions involved in migration processes, such as migrant smuggling networks, explain why the current crisis persists. The role of informal institutions is examined by focusing on those who migrate from Kyrgyzstan to the United States seeking low‐wage labor. The author generalizes how formal and informal institutions interact in the processes of migration and how informal institutions decisively influence immigration‐related policies in the United States.

Building on rational choice institutionalism theory and Williamson’s (J Econ Lit 38(3): 595–613, 2000) four-level social analysis framework, we investigate the influence of the informal institution of social trust on debt contract design in an international setting. Using a sample of non-U.S. firms that issue bonds in the U.S. debt market, we find that Yankee bond creditors impose fewer covenants on bond issuers domiciled in countries with a high degree of social trust. We further show that the inverse relationship between debt covenants and the informal institution of social trust is more pronounced for firms from countries with weak formal institutions, as well as for firms with poor corporate governance and greater information opacity. These findings are robust to endogeneity tests, within-country analysis, various empirical models and measures of trust, and alternative hypotheses. We also show that, while a lower level of informal social trust is associated with higher borrowing costs, this relationship weakens when formal covenants are added to the debt contract (i.e., a substitution effect). Our paper contributes to the international business literature by providing new insights into the role of informal institutions (social trust) in cross-border debt contracting.

Building on rational choice institutionalism theory and Williamson’s (2000) four-level social analysis framework, we investigate the influence of the informal institution of social trust on debt contract design in an international setting. Using a sample of non-U.S. firms that issue bonds in the U.S. debt market, we find that Yankee bond creditors impose fewer covenants on bond issuers domiciled in countries with a high degree of social trust. We further show that the inverse relation between debt covenants and the informal institution of social trust is more pronounced for firms from countries with weak formal institutions, as well as for firms with poor corporate governance and greater information opacity. These findings are robust to endogeneity tests, within-country analysis, various empirical models and measures of trust, and alternative hypotheses. We also show that while a lower level of informal social trust is associated with higher borrowing costs, this relation weakens when formal covenants are added to the debt contract (i.e., a substitution effect). Our paper contributes to the international business literature by providing new insights into the role of informal institutions (social trust) in cross-border debt contracting.

This paper argues that the role of informal institutions is central to understanding the politicization in Central and Eastern Europe generally and specifically in the formation of senior civil service (SCS) system. We focus on three diverse CEE countries in our analysis: Estonia, Hungary, and Slovakia. Our analysis is based on the framework elaborated by Helmke & Levitsky, of informal institutions and focuses on “competing” informal institution of discretionary power of politicians in personnel SCS decisions. We argue that turning to “substitutive” informal institutions was critical in forming professional SCS in Estonia while relying solely on formal institutions (i.e., law making) in Hungary and Slovakia evidently failed to create a professional formal SCS. We identify factors that in this region may promulgate professionalization. We also test the applicability of the Helmke Levitsky framework and suggest some ways to expand its applicability.

The literature on innovation offshoring has focused on the dichotomous choice between two distinct investment strategies – captive offshoring and outsourced offshoring. We use the concept of organizational control to investigate how differences in the informal institutions that prevail in the home and host countries influence multinational enterprise (MNE) strategy (or, the organizational control decision) with respect to subsidiaries established to offshore innovation. While the relationship between formal institutions and MNE strategy has been the subject of considerable academic scrutiny, less is known about the role of informal institutions. We propose that the type of uncertainty precipitated by informal institutions is critical to understanding the strategic behavior of foreign-investing MNEs. We hypothesize that an MNE’s organizational control over a subsidiary will be contingent upon the type of informal institutional uncertainty encountered by the subsidiary. More specifically, we disaggregate the informal institutions construct and develop three new, more explicit, latent constructs – behaviorally-oriented informal institutions (BOII), technology-oriented informal institutions (TOII) and demand-oriented informal institutions (DOII). Our theory posits that while an increase in BOII distance will precipitate a preference for greater organizational control, heightened TOII and DOII distances will induce the opposite outcome – a preference for lower levels of organizational control.

This paper investigates how differences in the informal institutions prevailing in the home and host countries influence the foreign entry strategies of multinational enterprises (MNEs). While the relationship between formal institutions and MNE strategy has been the subject of considerable academic scrutiny, less is known about the role of informal institutions. Our theory contends that the type of uncertainty precipitated by informal institutions is critical to understanding the strategic behavior of foreign-investing MNEs. More specifically, we dis-aggregate the informal institutions construct and develop two new, more explicit, latent constructs – behaviorally-oriented informal institutions and technology-oriented informal institutions. Our theory posits that increased behavioral informal institutional distance will precipitate a preference for full ownership (WOS) and a greater proportion of expatriates in subsidiary investments. Conversely, heightened technological informal institutional distance will predict the opposite outcome – a preference for shared ownership (JV), host country partners rather than home country partners and a smaller proportion of expatriate employees. We test our theory using a longitudinal sample of subsidiary investments that were established in emerging markets for the purpose of engaging in innovation–related activities. The results provide support for our conceptualization of informal institutions and the construct’s relationship with the entry strategies of foreign-investing MNEs.