Effects Of Informal Institutions Research Articles

Institutions and corruption relationship: Evidence from African countries

This study considers the combined effects of formal (i.e., national governance) and informal (i.e., national culture) institutions on corruption based on a sample of 52 African countries over the 2007–2022 period. Employing institutional theory, our findings are three-fold. First, we find weak formal institutions (i.e., national governance systems) to be associated with higher levels of corruption. Second, regarding the effects of informal institutions (i.e., national culture) on the level of corruption, our results suggest that high power distance, uncertainty avoidance, and collectivism are associated with higher levels of corruption. However, masculinity has a negative and significant influence on the level of corruption in Africa. Finally, our main results indicate that the joint effect of formal (national governance) and informal (national culture) institutions tends to be associated with a high incidence of corruption at societal level.

Analyzing the impacts of informal institutional factors affecting gender inequality: Evidence from 43 countries

Gender inequality is a socio-culturally constructed concept that people often take for granted. Since informal institutions, built on culture and traditions, significantly contribute to gender bias, examining the institutional factors that play into this effect may help determine the underlying causes of gender inequality. This study adopted seven gender-related perceptions from the World Value Survey (WVS) Wave 7 to test the different effects of informal institutions in 43 countries, utilizing disaggregate regression analyses to reduce the heterogeneity of the data. Socio-economic factors, including gender, education level, and income level, were added in the sub-analyses to identify the additional impacts of informal institutions. All seven factors in the main analysis and 53 out of 56 factors in the sub-analyses affected gender inequality at various levels of significance. Interestingly, more women than men were supportive of gender-biased perceptions in the sub-analyses. The results demonstrate how informal institutions shape and influence people’s thoughts and views around them regardless of gender or socio-economic level. Therefore, taking deliberate measures to change people’s attitudes toward gender issues is critical. Based on the results, a series of policy recommendations is suggested: introducing citizen participation to enhance transparency and fight corruption, conducting gender inequality-related campaigns using various media platforms, increasing cooperation with international organizations and agencies to set up proper gender-related mechanisms, and ensuring equal access to resources and opportunities.

A new cross-country index measuring the heterogenous effects of informal institutions

ABSTRACT Studies have identified two fundamentally different types of informal institutions: public and private informal institutions. Empirically, most studies have focused on public informal institutions such as social trust, since indexes measuring private informal institutions such as closed trust have been rare. This research introduces a new index of private informal institutions that captures whether private informal institutions hinder or enhance development by complementing, accommodating, competing, or substituting formal institutions. To this end, we introduce an empirical strategy to measure the four types of private informal institutions for more than 120 countries for the years 1990–2010 in a five-year interval. The extracted index reveals that advanced industrial democracies have complementing and accommodating private informal institutions, whereas post-communist and resource-rich countries have substituting private informal institutions, and countries with some experience of democratization and development display competing private informal institutions. The index also shows that private informal institutions can change rapidly, which can expedite and enhance institutional quality for some countries but deteriorate it for others.

Confucian culture and executive compensation: Evidence from China

AbstractResearch Question/IssueThis study investigates how traditional Confucian culture affects executive compensation from three dimensions: CEO compensation level, CEO pay gap (the pay gap between CEO and other management members), and the gender pay gap.Research Findings/InsightsWe find that firms' exposure to stronger Confucianism is associated with less CEO compensation, a smaller CEO pay gap, and a larger gender pay gap in China. These findings are consistent with the core values of moderatism, collectivism, and patriarchalism rooted in the Confucian culture. Our findings are robust to different firms' exposure to Confucian culture measures. Endogeneity concerns are further addressed with a subsample of firms that experienced headquarters relocation. Cross‐sectional analyses show that the influence of traditional Confucian culture is more pronounced for firms facing less industry competition, owned by the state, or with a higher concentration of power. Additional analyses show that the Confucian culture also reduces the CEO's pay‐for‐performance sensitivity, weakens pay incentives, and leads to lower firm risk‐taking; however, it also mitigates firm agency problems by reducing firm earnings management and managerial perk consumption. The combination of these positive and negative effects reduces the firm's overall value.Theoretical/Academic ImplicationsThis study expands our understanding of the role of informal institutions in corporate behavior. Corporate governance is embedded in the market's formal institutions, which, in turn, are embedded in local informal institutions. Academically, our study suggests further corporate governance research on informal institutions, especially in emerging markets where institutional development is not yet complete and informal institutions play a particularly important role.Practitioner/Policy ImplicationsThis study could help practitioners better understand the business culture and compensation contract design in Confucian nations. It also suggests that policymakers consider the effect of informal institutions when designing formal institutions.

Environmental village regulations matter: Mulch film recycling in rural China

The extensive use and ineffective management of agricultural mulch film in agricultural production have caused serious plastic pollution, thus, mulch film recycling is necessary. Previous studies have shown that formal institutions have a significant impact on mulch film recycling; however, the effect of informal institutions, which have a significant impact on pro-environmental behaviors, remains less explored. In this paper, 12058 pieces of cultivated land data from five representative provinces in China were used to study the impact mechanisms of environmental village regulations, a representative informal institution, on mulch film recycling behavior, by using the Probit model, Heckman two-stage model, and mediation effect model. The results indicated that there are both direct impact and indirect impact mechanisms of environmental village regulations on mulching film recycling. The environmental village regulations had a significant direct positive effect on the recycling of mulch film. In addition, the environmental village regulations had a significant indirect positive impact on mulch film recycling through the selection of mulch film with different thicknesses and the number of days the mulch film was used. Based on the findings, our recommendation is that specific environmental village regulations should be established in all villages to promote mulch film recycling. In addition, the government should further regulate the manufacturing, sale, and use of plastic mulch film.

Accessibility to external finance and entrepreneurship: A cross-country analysis from the informal institutional perspective

ABSTRACT By using individual-level survey data from 97 countries, we investigate the effect of informal institutions on external financing and its impact on entrepreneurship. We find that a culturally driven entrepreneurial environment allows entrepreneurs to obtain more debt, equity, and venture capital financing, and this, in turn, increases entrepreneurial activities. We further find that culturally driven entrepreneurial environment is more critical in determining entrepreneurship than formal institutional arrangements (such as investor protection). Our results provide evidence that cross-country variations in entrepreneurship can be explained by differences in cultural support to new venture financing across countries.

What drives voluntary corporate water disclosures? The effect of country‐level institutions

AbstractThe purpose of this cross‐country comparative research is twofold. First, it investigates the country‐level institutional factors that affect corporate incentives to voluntarily disclose water information. Second, it examines the way in which the interaction between formal and informal institutions affects corporate reporting decisions regarding water‐related risks. The results reveal that the country‐level legal system shapes the firm's propensity to voluntarily respond to the 2015 Carbon Disclosure Project water survey. Uncertainty avoidance and societal trust are negatively related to the propensity to provide voluntary water disclosures, whereas countries' future orientation is positively related to the likelihood of water reporting. More importantly, the results indicate that the effect of informal institutions on water disclosure practices is contingent on the strength of formal institutions at the country level. The paper contributes to the emerging water literature and provides insights on the effects of the interaction between formal and informal institutions on corporate behavior.

How do informal institutions influence inward FDI? A systematic review

In the last 15 years, the literature on international economics and international business has been paying increasing attention to informal institutions and to how they affect a variety of economic variables, inward FDI in particular. The main aims of this work are: to shed more light on a puzzling, elusive concept -informal institutions- also by drawing comparisons with related constructs; to overview the main types of informal institution and their effects on FDI inflows; to conduct a meta-analysis to explore the heterogeneity across empirical studies focusing on the effects of informal institutions on FDI inflows. The main findings of the present work are as follows: according to most of the existing literature, informal institutions, such as trust, social networks and corruption, matter for the purpose of attracting FDI. The sign is significantly determined by the type of informal institution considered. In particular, social networks and factors typically facilitating or in favour of FDI—such as trust and a positive attitude to liberalism—have a significant and positive impact on inward FDI, and this especially holds when the host country is a developing economy.

Discussion of: Effects of Informal Institutions on the Relationship between Accounting Measures of Risk and Bank Distress

Discussion of: Effects of Informal Institutions on the Relationship between Accounting Measures of Risk and Bank Distress

Effects of Informal Institutions on the Relationship between Accounting Measures of Risk and Bank Distress

We investigate the effects of informal institutions (trust, religiosity and the media) on the relationship between accounting-based risk measures and bank distress. We conduct our analysis in two stages. In the first stage, we extend the prior literature by documenting a link between accounting-based risk measures and bank distress during the 2008-2009 financial crisis. In particular, given the environment characterized by rapid growth in financial innovation and complex financial transactions prior to the crisis, simple accounting-based risk measures continue to predict bank distress during this crisis period. In the second stage, we address our main research question related to the effects of selected informal institutions (societal trust, religiosity, and the media) in enhancing the predictive ability of accounting-based risk measures. As hypothesized, we find that these informal institutions enhance the predictive ability of accounting-based risk measures. Our results inform regulators that the focus on strengthening formal institutions should not ignore country-specific informal institutional structures.

Languages and earnings management

We predict that managers of firms in countries where languages do not require speakers to grammatically mark future events perceive future consequences of earnings management to be more imminent, and therefore they are less likely to engage in earnings management. Using data from 38 countries, we find that accrual-based earnings management and real earnings management are less prevalent where there is weaker time disassociation in the language. Our study is the first to examine the relation between the grammatical structure of languages and financial reporting characteristics, and it extends the literature on the effect of informal institutions on corporate actions.

Languages and Earnings Management

We predict that managers of firms in countries where languages do not require speakers to grammatically mark future events perceive future consequences of earnings management to be more imminent, and therefore, they are less likely to engage in earnings management. Using data from 38 countries where languages differ on how they encode time, we find that accrual-based earnings management and real earnings management are less prevalent where there is weaker time disassociation in the language. Our analysis based on the birthplace information of U.S. firms’ CEOs confirms the relation between languages and earnings management. Our study is the first to examine the relation between the grammatical structure of languages and financial reporting characteristics, and it extends the literature on the effect of informal institutions on corporate actions.

Structuring transnational interests: the second-order effects of soft law in the politics of global finance

ABSTRACTInternational soft law has become a hallmark of global economic governance: networks of official and private ‘governors’ create standards, best practices and norms. Research often frames these efforts as solutions to perceived problems arising from globalization. Yet the narrow focus on the rulemaking process – coordination, distributive implications and implementation – misses second-order political repercussions. Giving special attention to the interaction between international soft law and the political landscape of business advocacy, this article offers an alternative account of the relationship between transnational rules and powerful actors. We argue that transnational informal institutions are not only sites of cooperation that resolve the economic policy concerns of the day, but are also sources of policy feedback that can transform the political landscape. To illustrate the potential empirical traction of these arguments, we examine the critical case of the Basel Committee on Banking Supervision and the Institute of International Finance (IIF). The IIF went from being a struggling organization with no regulatory agenda or lobbying skills to the world's most influential financial industry advocate directly engaging transnational forums. We find that second-order effects of soft law were a primary cause of the IIF's transformation. Our study has major implications for research on global governance as we highlight the political ramifications and temporal effects of informal institutions for business representation.

Institutional Determinants of Acquisition Strategies: The Role of Informal Institutions in Russia

We contribute to an improved understanding of the effects of informal institutions on local firms' acquisition behavior in an emerging economy context. We compare the different regions of the Russian Federation and propose that the continuity and autonomy of the regional leadership and interaction between businesses and local decision-makers through corrupt practices contribute to the emergence of an informal institutional context that is supportive of acquisitive growth. Results from an analysis of the behavior of 2,981 firms in 40 different regions of Russia during 2001-2008 support our predictions. We extend the existing research on institutional determinants of behavior and the importance of informal institutions for stability and predictability when businesses have to cope with formal institutional voids.

Effects of Informal Institutions on the Performance of Microenterprises in the Philippines: The Mediating Role of Entrepreneurial Orientation

The study investigates the effects of informal institutions and entrepreneurial orientation on the performance of microenterprises at the subnational level within a developing country context. Using structural equation modeling based on a large-scale survey of 735 microenterprises in the Philippines, it is found that informal institutional factors and entrepreneurial orientation are associated with firm performance. However, further analysis reveals a strong mediating role of entrepreneurial orientation on the informal institutions-firm performance relationships. This finding is novel and adds to our understanding of the mechanism through which informal institutions affect firm performance, particularly for microenterprises in developing countries.

Informal institutions as mechanisms to address challenges in communal grazing land management in Tigray, Ethiopia

The role of institutions providing rules, norms and regulations, in addressing challenges in communal resources management has been debated for several decades. This article analyses the role of informal institutions for addressing shortage of grazing land, conflicts among users of communal grazing land and resistance among users to shift from free grazing to zero grazing in Tigray, Ethiopia. We used in depth interviews and focus group discussions for data collection. We argue that informal institutions are important mechanisms for addressing the challenges in communal grazing land management. The contributions of informal institutions for addressing challenges in communal grazing lands varied with type of challenge and were influenced by distances from markets and Wereda towns. Although the informal institutions were crucial in reversing the shortage of grazing land by regulating access to communal grazing land and enhancing controlled use of grass, they did not contribute to resolving conflicts that arose from unequal allocation of benefits in the village far from a market and Wereda town. Incorporating zero-grazing practices in informal institutions was hindered by disagreements among users and the top-down approach used by development agents when introducing zero grazing. To enhance effectiveness of informal institutions, the increasing grazing pressure should be addressed using more efficient schemes for harvesting grass. Moreover, creating awareness of the need for fewer but more productive cattle breeds is crucial. Consideration of well-performing informal institutions in policy and development interventions is essential to maximise the benefits of communal grazing lands to improve livelihoods of users.

Evolution of Institutions and Economic Performance

The essay is based on the knowledge that institutional quality may influence economic performance. From this viewpoint, it is possible to demonstrate that under certain circumstances, governmental policy is able to increase economic efficiency and performance by creating, maintaining, and cultivating suitable social institutions. However, this approach does not imply the enforcement of the dominant role of the state, but rather the effort to accept and/or to cancel measures, which substantially affect the long-term potential of the economy. It is a concept of the guarantee and the co-creator of the basic rules and institutions. The authors also point to the effect of informal institutions, which undoubtedly form the basic social environment. The paper is structured as follows: After looking back at the history, the second part focuses on new institutional economics, whereas the third and fourth part deals with the definition and classification of institutions. The following chapter seeks to summarize the main direction of the effect of institutions. The final part presents an overview of a number of studies, which were focusing on the relationship between the quality of the institutional environment and economic growth, it also outlines fundamental institutional quality measurements and provides a set of several basic institutional quality indicators.

The unrule of law in the making: The politics of informal institution building in Russia

‘INFORMAL INSTITUTIONALISATION’ (O’Donnell, 1996), or the prevalence of informal rules and norms over the formal institutions of political regimes (Merkel & Croissant, 2000), is a typical outcome of various post-authoritarian transitions (Helmke & Levitsky, 2003), including post-Soviet ones. The dominance of informal institutions which create obstacles to the rule of law is a major distinction between Russia (and other post-Soviet regimes) and most Eastern European countries (Gel’man, 2003). But what are the origins, formation mechanisms and development trends of Russia’s informal political institutions? Because answering these questions requires the collective efforts of the international and interdisciplinary academic community, this article is focused only on specific aspects. The article is divided into four sections. First, I examine existing structural explanations for the dominance of informal institutions in Russian politics. Second, I present a procedural model of informal institutionalisation in emerging political regimes. Third, I analyse the politics of informal institution building in Russia, using the case of institutions of electoral governance as an example. Finally, the effects of informal institutions on political regime dynamics in Russia will be considered.

The European Parliament before the bench: ECJ precedent and EP litigation strategies

The influence of the European Court of Justice and its jurisprudence on European integration is well established. A closer look at this process reveals the extent to which its precedents exert influence on EU actors' decision-making in ways that parallel the effects of informal institutions. The dynamics of legal decision-making, therefore, provide some useful insights into how it is that informal institutions may shape behaviour similarly. This paper explores the impact, on intergovernmental actors, of a quite pro-integrative ECJ jurisprudence in cases concerning the European Parliament and shows how, over time, even decisions that they oppose come to influence their decision-making and conduct in inter-organizational conflicts.