Firms In Transition Economies Research Articles

CSR and new product development performance in transition economies: roles of internal capabilities, external networks, and dysfunctional competition

ABSTRACT Despite abundant research on corporate social responsibility (CSR) outcomes, few studies have examined whether CSR contributes to new product development (NPD) performance. Existing studies argue that CSR increases firms’ innovation activities and launches more new products, however, these arguments have yet to fully extend to the understanding of underlying mechanisms in the CSR-NPD relationship and how CSR fosters NPD performance in different scenarios, especially in transition economies. Building on the resource-based view, social capital theory, and structuration theory, this paper hypothesizes that the CSR influence on NPD performance is mediated by internal capabilities and external networks and moderated by dysfunctional competition. Using empirical data of 219 small and medium-sized firms in China, we find that CSR not only directly increases firms’ NPD performance but also has positive effects on internal capabilities and external networks, which in turn improve NPD performance. Moreover, as one of the most representative institutional environments in transition economies, dysfunctional competition strengthens the effects of CSR on internal capabilities and external networks. This research contributes to the CSR and NPD literature in transition economies and offers strategic guidance to innovating firms in transition economies on how to foster and benefit from CSR initiatives, NPD managers should comprehend the coevolution of CSR, innovation, and institutional environments in transition economies.

Improving business environment for information technology adoption in small business: evidence from a transition economy

ABSTRACT Adoption of information technology is widely known to be important for firm development. Nonetheless, little has been revealed about how to promote micro-sized firms to adopt information technology. Using the zero-inflated Poisson model to analyse longitudinal data adopted from the biennial Small and Medium Enterprises Surveys in the manufacturing sectors and data on the quality of the local business environment from the annual Provincial Competitiveness Index surveys in Vietnam, this study shows that while better infrastructure readiness is associated with more adoption of information technology among larger firms, it is not enough for micro-sized firms. These micro-sized firms need to be further supported by the improved quality of the local business environment. These findings suggest that policies on information technology should be complemented with policies to improve the business environment to facilitate adoption of information technology among micro-sized firms in transition economies.

Financing constraints, intellectual property rights protection and incremental innovation: Evidence from transition economy firms

Despite a growing literature, the relationship between financing constraints (FC), intellectual property rights (IPR) protection and firm innovation remains unclear within the transitional country context. Drawing on endogenous growth theory and extending the Gorodnichenko and Schnitzer (2013) framework, we hypothesize that in addition to firm-specific factors, country-level variables manifested within FC hamper incremental innovation, albeit in varying degrees due to industry heterogeneity. Secondly, as opposed to previous studies that solely focus on FC affecting firm innovation, we propose that due to resource constraints, firms in transition economies tend to follow an imitational innovation strategy, and therefore, from this perspective, IPR protection can be crucial for firm-level innovation within those economies. Using data from the World Bank Enterprise Survey (WBES) consisting of information for about 21,960 firms from 27 Eastern European and Central Asian transition countries and employing a two-step probit model with endogenous regressors, we find that adverse effects of FC and IPR on firms' innovation activities are driven from within as well as between industries. Focusing on the differential impacts of FC and IPR protection across industries, we direct potential causal pathways from easing FC and optimal IPR protection to encourage firms' innovation. Based on the findings, while very strict IPR protection is detrimental to firms' product and process innovation in industries with limited resource and skill capabilities, it is nevertheless helpful for research and development (R&D) activities in industries characterised by strong R&D and IP capacities. Our results offer useful insights for policymakers to support incremental innovation as well as boost invention. IPR protection policies require to be customised to the industries and firms, since invariably tight or lax IPR enforcement can be discouraging to both incremental and radical innovation, causing all industries suffering from the same treatment.

Digital technologies as a driver of resilience and institutional transformation: The case of Ukrainian agroholdings

Abstract The present paper explores how implementation of digital technologies (DTs) assists firms in transition economies in addressing weaknesses of the institutional environment surrounding them, in particular via establishment of collective governance systems. Based on case studies of three large-scale agroholdings operating in Ukraine, the paper aims to fill the research gaps with regard to the following: motivation of the firm to initiate DT-enabled collective governance systems; the rules these systems are based on; and the reasons behind the firm’s choice of a particular governance mode – closed, shared or open – for these systems. The findings generally support the institutional theory argument that complex technology enables coordination of exchange relationships not only within but also outside firm boundaries. At that, the choice of a governance mode between closed, shared or open institutional infrastructure is likely to depend on the firm’s ownership concentration, corporate transparency, availability of resources and social embeddedness.

The state of family business research in the Visegrád countries

PurposeThe institutional context in which family firms operate influences their behaviour and performance, yet literature reviews seldom analyse family firms on a regional basis. To fill this gap, this review aims to present research on family entrepreneurship in the transition economies of the Visegrád countries (V4). In this particular group of European economies, the current formal institutions have largely evolved along Western European lines. However, the transformation of informal institutions appears to be still in its infancy.Design/methodology/approachIn order to identify the most representative authors, the methodologies used, the main research topics and to establish a future research agenda, the authors selected, through a systematic process, 112 papers from the Web of Science up to the year 2022. The authors performed a bibliographic analysis using clustering algorithms, complemented by a traditional literature review.FindingsThe performance of family firms in transition economies has been the subject of very little research. The results allowed the authors to identify four main areas of research: governance, innovation, sustainability, competitive advantage and considering the influence of the region's characteristics on family business behaviour.Originality/valueStudies from transition economies can contribute to a broader understanding of family firms in terms of the impact of the institutional environment (especially the influence of sociological changes and specific historical experiences of family members) on their long-term planning, socioemotional wealth (SEW) protection and ethics. In light of recent events, research from the region may also contribute to the understanding of how and to what extent “familiness” influences crisis management or socially responsible behaviour in family firms.

A tale of two distractions: How institutional forces influence R&D‐based problemistic search in transition economies

AbstractThe behavioral theory of the firm (BTOF) suggests that firms are motivated to increase R&D search in response to profitability shortfalls—that is, R&D‐based problemistic search. Although prior studies have provided considerable evidence for this influential explanation of R&D search, recent research shows that it is not the case in transition economies. Our study sheds light on this critical question of Why not for transition economy firms (TEFs), by identifying institutionally derived mechanisms that distract TEF decision makers' attention from R&D‐based problemistic search. Specifically, we examine the implications of institutional environments for goal definition and problem attribution—two critical yet underexplored components of problemistic search. Integrating the BTOF and institutional implications, we theorize how TEFs' R&D‐based problemistic search is distracted by government‐imposed goal definition and politically oriented problem attribution. Using panel data on Chinese listed firms, we find that R&D search in response to profitability shortfalls is negatively moderated by employment shortfalls (government‐imposed goal definition) and lack of political connections relative to peers (politically oriented problem attribution). Our study provides novel insights into TEFs' R&D‐based problemistic search by revealing two institutionally derived distractive mechanisms (i.e., boundary conditions). Moreover, this study extends the BTOF literature by exploring how decision makers' intrinsic attention allocation (among different goals and among different latent problems) is subject to extrinsic institutional environments.

The impact of idiosyncratic risk on corporate financialisation——Evidence from China

Using the quarterly data of non-financial companies listed on China's A-share market from 2007 to 2019, this paper examines the relationship between the idiosyncratic risk formed based on the secondary market exchanges and the corporate financialization from the perspective of a market feedback effect. The empirical results show that idiosyncratic risk has a significant impact on the allocation of financial assets of non-financial enterprises, which is one of the motivating factors for the financialization of non-financial enterprises. Compared with SOEs, large enterprises and non-manufacturing enterprises; private enterprises, small and medium-sized enterprises, and manufacturing enterprises will allocate more financial assets when idiosyncratic risk increases. Mechanism analysis shows that managers risk aversion and financing constraints increase the impact of idiosyncratic risk on financial asset allocation while strengthening the external monitoring mechanism of institutional investors has the opposite effect. The research findings of this paper help to understand whether secondary financial markets affect the financial investment decisions of real firms in transition economies, and also have implications for how to govern the “transition from real to virtual” of real enterprises in China.

Political instability, resources, and political networking of firms in transition economies

Firms engaging in political networking is a widely witnessed phenomenon in transition states where the economy shifts from central planning to market mechanism. In this article, we integrate the institutional-based and resource-based perspectives to propose that firms located in transition countries with higher political instability tend to invest more in political networking; firms with substantial specific resources help enhance/devalue the political networking as political instability increases. This paper tests these arguments by using a sample of 24,959 firms in former communist countries. Our results reveal an inverted U-shaped influence of political instability on firm political networking. Specifically, with the political environments getting increasingly unstable, innovation investment and industrial experience motivate firms to maintain political networks, while financial capital demotivates firms’ investment in political networking. These findings shed light on deepening understandings of when and how political environments shape firms’ strategic behaviors in transition economies.

The Operating Performance of Newly Privatized Firms in Central European Transition Economies

The Operating Performance of Newly Privatized Firms in Central European Transition Economies

Independent and joint effects of CSR and CSI on the effectiveness of digital transformation for transition economy firms

This study examines how digital transformation affects the short-term performance and long-term value of transition economy firms as well as the moderating role of corporate social responsibility (CSR) and corporate social irresponsibility (CSI) in these relationships. We believe that digital transformation inhibits the short-term performance but increases the long-term value of transition economy firms. Furthermore, CSR and CSI have important contingency roles in the effectiveness of digital transformation. While CSR enhances the effectiveness of digital transformation, CSI weakens it. Finally, we believe that the enhancement role of CSR is weaker than the weakening role of CSI in the effectiveness of digital transformation. Using empirical data of Chinese listed companies from 2008 to 2020, we obtain empirical evidence confirming most of these theoretical views. This study provides new insights into the literature on digital transformation and firm ethical practices and presents important practical implications.

Inter‐industry FDI spillovers from foreign banks: Evidence in transition economies

AbstractUsing a sample of nonfinancial domestic firms in transition economies from Eastern Europe and Central Asia, we examine whether and how inter‐industry spillover from foreign direct investment in the banking sector occurs. Our findings show that the innovation pursued by domestic firms benefits from foreign bank penetration. However, these positive inter‐industry spillovers surprisingly do not seem to work through enhanced credit access. We further find these positive spillovers to occur mainly for foreign banks that use relationship lending, domestic firms that do not export, and host countries that are less open to the global market.

International and domestic external knowledge in the innovation performance of firms from transition economies: The role of institutions

In this study, we analyze how the acquisition of domestic and international external knowledge contributes to the innovation performance of firms in transition economies and how the institutional conditions of the home country may affect these relations. We test our hypotheses via the responses of 645 firms from 18 Central and Eastern European countries. Our findings show that both external knowledge sources—domestic and international—contribute positively to the number of new products in transition economies. Our results also indicate that a country's governance imperfections positively moderate the relations between both domestic and international external knowledge and the number of new products. Additionally, our findings highlight that the benefits of international external knowledge for product innovation are greater in contexts with weaker institutional conditions than in environments with stronger institutional conditions. In contrast, the benefits of domestic external knowledge for product innovation do not vary substantially between scenarios with stronger institutional conditions and those with weaker ones. These findings lead us to conclude that the institutional conditions of transition economies moderate the relation between domestic and international external knowledge and innovation performance differently, with international external knowledge proving particularly valuable for product innovation when these conditions are weak.

The innovation paradox of TMT political capital in transition economy firms

Does TMT political capital enhance or hinder firm innovation? While both the innovation benefits and costs of TMT political capital are acknowledged in the literature, we lack a systematic understanding of the theoretical context in which each perspective regarding the innovation outcomes of TMT political capital applies, specifically when the institutional environments are subject to fundamental and ongoing changes. Drawing on insights from upper echelons theory (UET), we propose a non-linear relationship between TMT political capital and firm innovation performance. Based on an analysis of 620 publicly listed firms in China, we find that TMT political capital has a U-shaped relationship with innovation performance. This curvilinear U-shaped relationship is negatively moderated by the marketization of commercial activities and resource allocation. Our study evokes new theoretical mechanisms for the innovation paradox of TMT political capital and sheds light on its boundary conditions in the context of transition economies.

Do Excess Funds Make Financially Constrained Firms Better Off? Evidence from IPOs in China

Firms in transition economies often suffer financial constraints. In initial public offerings (IPOs), however, many newly listed Chinese firms raise funds in excess of what is originally planned. This paper examines whether these excess IPO funds are wasted on value‐destroying spending or enable firms to take growth opportunities. After controlling for the endogeneity issue, we find that Chinese firms with excess IPO funds have better post‐IPO operating performance, especially those with limited financing channels. In revealing the mechanism, we find that excess IPO fundraising alleviates financial constraints and reduces the cost of debt.

Entrepreneurial orientation and vertical knowledge acquisition by smallholder agricultural firms in transitional economies: The role of interfirm collaboration in value-chains

This study extends the understanding of entrepreneurial orientation (EO), vertical knowledge acquisition, and actor collaboration to a “whole of value-chain” perspective in transitional economies by investigating a subsistence smallholder agricultural value-chain. It examines the relationships between EO and vertical knowledge acquisition and the role of value-chain collaboration. It also contributes to the understanding of entrepreneurship as an economic development tool by considering how EO moderates the effect of value-chain actor collaboration on acquiring market and consumer knowledge by subsistence upstream actors within value-chains. Data were collected through a survey of smallholder value-chain shifting from selling to local wet markets to selling to cattle collectors and traders and through a value-chain to retailers. The findings suggest that higher levels of EO by smallholders and SME agribusinesses enhance the acquisition of vertical knowledge such as market and consumer preference information throughout the value-chain, and interfirm collaboration positively moderates this relationship.

Regulations and Corporate Environmental Responsibility: evidence from a panel of firms in Transition economies

ABSTRACT This study investigates how a set of regulations influences the pro-environmental actions of firms in a panel of 25 Transition Countries. For this purpose, we use the enterprise survey data developed by the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the World Bank Group (WBG). Based on a logit modelling and on the construction of different indicators characterizing the environmental actions of the firms, we find that regulation positively affects the decision of firms to implement an eco-action. Results are confirmed when we examine the different eco-action categories. Findings obtained from the interactions are also worthy of note. In particular, we find that board of directors are more prone to consider shareholder interests, and a strong network effect emerges between EU candidate countries and EU economies.

Home country institutions and exports of firms in transition economies: Does innovation matter?

We draw on institutional theory and the resource-based view to analyze the relation between home-country governance imperfections and the export intensity of firms in transition economies, including an examination of the moderating role of innovation. We propose that greater governance imperfections result in lower export intensity and that innovation mitigates the constraints of operating with weak home-country institutions. Analyses of panel data from the Business Environment and Enterprise Performance Survey (BEEPS) on firms from transition economies provide support for our arguments. Our findings allow us to conclude that although firms from transition economies face difficulties to export due to the regulatory constraints of their home countries, a strategy based on innovation represents a viable way of overcoming these limitations.

Environmental sustainability engagement of firms: The roles of social capital, resources, and managerial entrepreneurial orientation of small and medium enterprises in Vietnam

AbstractHow firms in transition economies demonstrate their strategic engagement in sustainable environmental management given their limited resources and capabilities is less understood in the literature. This study explores how small and medium enterprises (SMEs) in Vietnam, an exemplar of a country in transition from a closed and socialist economy to an open and liberal market, draw on their external social capital to access critical resources that are leveraged by the entrepreneurial orientation or capabilities of the firms' top management towards engagement in business‐wide environmentally sustainable practices. Drawing on a database of more than 2000 firms from a large‐scale survey of firms in Vietnam, this study tests the relationships between two facets of social capital, environmental management resources and environmental sustainability engagement. This study further contends that managerial entrepreneurial orientation moderates by enhancing the strategic utilisation of resources to enable firms in Vietnam to engage in environmental sustainability. The results offer novel theoretical insights and timely managerial or practical implications as well as promising directions for future research on the resources, strategies and capabilities of firms in transition economies.

Does lowering entry cost counter the persistence of zombie firms

How to deal with zombie firms, which are inefficient but still surviving, is an important question that needs to be addressed by all countries. Using longitudinal data of enterprises and local business environment in a transition economy, this study shows that reducing entry costs to facilitate competition in the market is a key to drive out the persistence of being zombies, which typically characterises a large number of state-owned and foreign invested firms in transition economies. The study further reveals that the strategy to remove persistence of zombie firms by lowering entry costs in the market is effective for enterprises in manufacturing industries, while it is not in non-manufacturing industries.

The Impact of Ownership Structure on Listed Firms’ Performance in Vietnam

The aim of this study is to estimate the impact of ownership structure on the performance of listed firms in transition economy. Buiding upon agency theory, hypotheses on such relationship are proposed. A detailed panel data of 502 non-financial companies listed on Ho Chi Minh Stock Exchange and Hanoi Stock Exchange over the period from 2013 to 2018, and the system generalized method of moment estimation are employed to test the proposed hypotheses. To ensure the reliability of data, this study excludes companies that violate information disclosure regulations or that are subject to special supervision by the State Securities Commission of Vietnam. Some firms with inadequate information, firms that lack the financial data required for creating variable or firms that have inconsistent construction are also re-screened. We only collect the data of enterprises that have ownership structure of two or more components. Estimation results reveal that state ownership has an U-shaped relationship with the performance of Vietnamese listed firms, while foreign ownership and the degree of ownership concentration have an inverted U-shaped relationship with listed firms' performance. The article provides governance implications that Vietnamese listed firms should decrease state ownership and foreign ownership to improve firm performance in order to boost investors' confidence.