Quality Of Institutions In Countries Research Articles

The zero-debt puzzle in BRICS countries: Disentangling the financial flexibility and financial constraints hypotheses

This study analyzes the zero-debt decisions of BRICS firms using a bivariate probit model. The leading hypotheses are financial flexibility and financial constraints. On the demand-side, our findings reveal that managerial debt aversion, early lifecycle stage, growth opportunities, solvency, and concentrated ownership contribute to the lack of debt. Similarly, a country's institutional quality correlates with firms' debt-free status. On the supply-side, creditors fund companies with poor financial records in countries with robust markets and economic freedom. Financial flexibility and restrictions leading to zero debt are linked to firm and institutional characteristics in emerging countries.

Study on the Impact and Mechanism of the Quality of Host Country Institutions on China's OFDI

In recent years, the scale of China's Outward foreign direct investment (OFDI) has grown rapidly, but with the increasingly complex and changeable international environment, China's OFDI is facing great pressure. Taking 159 countries as samples, this paper selects 10 secondary indicators from the three dimensions of politics, economy, and law to construct the evaluation system of host country institutional quality, and measures the host country institutional quality from 2011 to 2021, studies the influence of host country institutional quality on China's OFDI and the intermediary mechanism, and conducts heterogeneity test. The conclusion shows that the improvement of host country's institutional quality significantly promotes the inflow of China's OFDI, and at the same time, the improvement of host country's institutional quality can improve the country's scientific and technological innovation ability and infrastructure construction level, and ultimately promote the increase of China's OFDI. This promoting effect is more obvious in low-middle-income countries and countries that have signed the Belt and Road agreements. Finally, suggestions are put forward based on the conclusions.

Navigating multiple institutional environments: institutional quality and the role of Belt and Road Initiative on location choice of Chinese MNEs

Purpose This study aims to explore the extent to which Chinese multinational enterprises (MNEs) rely on supranational institution – the Belt and Road Initiative (BRI) – versus host country institutional quality to navigate their foreign location choice. Design/methodology/approach This study uses a conditional logit regression model using a sample of 1,302 greenfield investments by Chinese MNEs in 54 BRI participating countries during the period 2011–2018. Findings The results indicate that as a supranational institution, the BRI serves as a substitution mechanism to address the deficiencies in institutional quality in BRI participating countries, thereby attracting Chinese MNEs to invest in those countries. In addition, the BRI’s substitution effect on host country institutional quality is more pronounced for large MNEs, MNEs in the manufacturing industry and MNEs in inland regions. Originality/value This study expands the understanding of the BRI as a supranational institution for MNEs from emerging markets and reveals its substitution effect on the host country institutional quality. Furthermore, it highlights that MNEs with diverse characteristics gain varying degrees of benefits from the BRI.

How relative technological size affects innovation performance of cross-border technology M&A enterprises: a configuration perspective

ABSTRACT Cross-border technology mergers and acquisitions (M&As) are critical strategic decisions for emerging multinational enterprises (EMNEs) seeking to gain competitive advantage. While previous research has examined the net effect of relative technological size on the innovation performance of EMNEs, their theoretical hypotheses and empirical results have been inconsistent. These studies fall short in explaining how relative technological size enhances innovation performance under conditions of acquirer knowledge absorptive capacity (comprising knowledge base and R&D investment) and macro-institutional contexts (comprising host country institutional quality and diplomatic relations). Utilising a sample of 44 listed firms in mainland China from 2008 to 2018, and employing the fuzzy-set qualitative comparative analysis (fsQCA) approach, our research reveals the relationship between different configurations of these influencing factors and the innovation performance of EMNEs. Our findings suggest that the mechanism by which relative technological size affects innovation performance is contingent upon the conditions of knowledge absorptive capacity and macro-institutional contexts.

The impact of host country institutional quality on OFDI: Evidence from China

This paper is aimed at investigating the influence of the institutional quality of the host country on China's outward foreign direct investment (OFDI) from a binary margin perspective. The quality of the host country's system is assumed to have a positive impact on the extensive margin of OFDI in terms of political stability (PS), regulatory quality (RQ), the rule of law (RL), and the control of corruption (CC); however, such system quality inhibits the growth of the intensive margin via RQ, voice and accountability (VA). We further find that institutional differences and the extensive margin of OFDI have a negative relationship. Heterogeneity analysis shows that the host country's institutional quality significantly contributes to the extensive margin of investment when the host country is a non-low-income country, the investment is nongreenfield investment, and the industry invested in is the real estate industry. There is a moderating effect of investment motives on the relationship between host country institutional quality and OFDI where host country institutional quality positively affects the extent of investment when the investment motive is market seeking and negatively affects the extent of investment when the investment motive is natural resource seeking.

Macroeconomics factor, institutional quality and export performance: Empirical evidence from Pakistan

AbstractA country's institutional quality (INS) influences its export performance (EXP) and plays a vital role in international trade. The purpose of this study is to investigate the short‐run and long‐run relationships among these macroeconomic factors in Pakistan. Annual data from the World Development Indicators and the International Country Risk Guide were used from ‘1989 to 2019’. To investigate the short‐run and long‐run linkage between INS and EXP, the non‐linear auto‐regressive distributed lag and error correction model are used after incorporating structural breaks. Additionally, the macroeconomic explanatory variables used are the exchange rate (ER), human capital (HC), gross domestic product (GDP) and foreign direct investment (FDI). In the long run, INS, HC, GDP and FDI have a significant positive relationship with EXP, whereas the ER has a significant negative relationship. In the short run, INS is significant and positive, whereas HC, GDP and FDI with EXP are modest but significantly positive. To improve export performance in Pakistan, strategic reform of governmental institutions is required.

Does global diversification promote or hinder green innovation? Evidence from Chinese multinational corporations

Green innovation plays a critical role in facilitating firms to achieve sustainable development. This study aims to investigate how global diversification affects green innovation. Existing literature suggests that global diversification can have both positive and negative effects on firms' engagement in green innovation. While it can increase firms' pressure and ability to participate in green innovation activities, thereby promoting their green innovation efforts, it can, however, be utilized to evade environmental responsibility, thereby hindering their green innovation efforts. In an empirical analysis focusing on a sample of Chinese multinational corporations (MNCs) from 2008 to 2020, MNCs' global diversification is found to affect their green innovation significantly and positively. Moreover, the positive effect of global diversification on green innovation is enhanced by factors, such as the host country's institutional quality, state ownership, and the CEO's academic experience. The findings suggest that global diversification can facilitate Chinese MNCs' engagement in green innovation activities rather than being utilized to evade environmental responsibility. Furthermore, the results reveal that the positive effect of global diversification on green innovation depends on the external and internal environments in which MNCs operate. Overall, this study provides new insight into the determinants of corporate green innovation in emerging market MNCs.

What drives environmental, social and governance (ESG) performance? The role of institutional quality

PurposeThis study aimed to investigate the role of the country's institutional quality on the environmental, social and governance (ESG) performance of its companies.Design/methodology/approachOver a four-year period (2016–2019), the study examined the ESG performance of 412 organizations situated in 19 countries. ESG performance was the dependent variable, and the independent variables were rule of law, economic freedom, education index and international trade freedom. These factors described the institutional quality of countries in the authors’ study.FindingsThe findings reveal that institutional quality has a major impact on ESG performance. Companies engage in more ESG practices when they operate in countries with greater economic freedom and international trade freedom. The authors corroborated the core assumption of institutional theory (IT), which argues that organizational behavior is determined by the country's institutional setting.Research limitations/implicationsThe findings, like all research, should be interpreted with caution. The authors’ research focused solely on large energy corporations. As a result, the conclusions cannot be applied to small companies or other industries. ESG performance can also be measured using different datasets.Practical implicationsIf managers want their companies to perform better in terms of ESG, the authors recommend that they form a CSR committee and sign the Global Compact. This study may be valuable to international policymakers because they can underline that greater economic freedom, better education and greater international trade freedom all promote higher ESG performance.Originality/valueTo the best of the authors' knowledge, nearly all of research explores the relationship between ESG and financial performance. As a result, this study built on past research by investigating how national aspects affect corporate ESG performance.

How does uncertainty impact IPO activity? International evidence

This paper examines the impact of economic uncertainty on IPO activity in 52 countries. Using a dataset of 70,760 IPOs from 1990 to 2021, we find that economic uncertainty (proxied by the World Uncertainty Index) has a negative effect on IPO activity (both IPO count and proceeds). Additionally, we show that a country's institutional quality, characterized using the World Governance Indicators, alleviates the negative effect of uncertainty on IPO activity. These findings are robust to alternative model specifications. Relevant policy implications are also provided.

The role of institutional quality and industry dynamism in explaining firm performance in emerging economies

AbstractResearch SummaryThis study explains how heterogeneity in firm competitiveness and performance in emerging economies is influenced jointly by the institutional quality of countries and interindustry variations in technological and market dynamism. The analysis of 12,888 firms from 16 emerging economies shows that while the performance advantages of institutional quality are strengthened for firms in technologically dynamic industries, the opposite pattern emerges in high market‐dynamism industries. The study advances the institution‐based view by explaining the mechanisms through which such effects occur and why two industry‐specific boundary conditions (technological and market dynamism) influence differently the relationship between institutional quality and firm performance.Managerial SummaryThis study investigates how the performance of firms in emerging economies is influenced by the quality of institutions in each country as well as by the technological and market dynamism in the industry in which each firm operates. To examine these relationships, the study analyzes a sample of 12,888 firms from 16 emerging economies. The results indicate that institutional quality enhances firm performance and that these positive effects are stronger in technologically dynamic industries than in industries that are less technologically dynamic. However, the opposite pattern of results emerges for market dynamism, indicating that the role of institutional quality in enhancing firm performance is weaker in industries that exhibit a high degree of market dynamism than in industries that are less volatile in market demand.

A study on the interaction effect of institutional quality and OFDI on Chinese export trade--case analysis based on RCEP member countries

OFDI is an important approach for China to realize economic integration with all countries in the world, and has a vital significance for China's "going-out" strategy. Based on the foreign trade panel data of China and RCEP member countries from 2009 to 2019, this paper explores the trade effect of OFDI and foreign exports, and studies the role and effect of host country institutional quality in the trade effect of OFDI. Further study is made on the influence of six governmental governance indicators of RCEP member state system quality on Chinese export trade. The results show that China's OFDI has complementary effects on the export trade of RCEP member countries, that is, OFDI has promoting effects on China's export trade in RCEP trade. The sound institutional quality of RCEP member countries strengthens the positive effect of OFDI on export trade; Six sub-indexes of institutional quality have promoted the export trade of our country significantly. Finally, this paper puts forward some suggestions to circumvent the system risks of RCEP member states from the perspective of regulatory authorities and enterprises. Conclusion can provide reference for the system development of our country.

Tax havens and emerging market multinationals: The role of property rights protection and economic freedom

This paper presents an investigation of the relationship between home country institutional quality and EMNE investments in tax havens. We develop a conceptual framework that adapts the institutional escapism framework, whereby EMNEs expand globally to escape any home country institutional hazards, together with the institutional leverage framework, whereby EMNEs can leverage their home country institutions as a competitive advantage. This enabled us to conceptually derive and explain the curvilinear (U-shaped) relationship that develops between institutional differences and reforms over time and how this affects EMNE strategy towards tax havens. Based on a large cross-country firm-level dataset, our empirical results confirm the curvilinear relationship, such that EMNEs from weaker institutional environments are more likely to own tax haven subsidiaries. However, as emerging countries improve their institutional environment, the likelihood of investing in tax havens declines before increasing again at a time when said emerging countries have achieved developmental stages similar to those of developed countries. Based on our results, we draw several managerial and policy related implications.

Foreign ownership, bank efficiency and stability: Whether the institutional quality of countries is important?

AbstractThis article is aimed to investigate the extent to which the home and host countries' institutional quality helps explain the efficiency and stability differences between the domestic and foreign banks operating in Tunisia and Morocco over the 2005–2017. For this purpose, a simultaneous equations approach was considered to investigate the dynamics between efficiency and stability. Our framework follows the premise that stability is endogenously related to efficiency only for Moroccan banks' sample when models' estimation has been administered considering each country separately. The findings reveal also the persistence of a positive effect of foreign ownership on bank efficiency, highlighting that banking efficiency need be effectively sustained with a reasonable level of institutional development. Moreover, the institutional differences characterizing the home and host countries has a negative impact on the foreign banks' stability. Accordingly, policy makers in the Great Maghreb area could well aspire to enhance foreign ownership in their banking sector, on the ground that it helps remarkably in improving corporate governance and boosting efficiency, given mainly the acquired technical advantages often associated with their developed home countries. The generalized moments method estimator outlines the persistence of a noticeable banking inefficiency and stability, with a significant effect of the stability variable on banks' inefficiency and performance, suggesting that banking‐efficiency boosting policies might well ultimately guide and veer management choices towards less risky investments.

The more the better? Information sharing and credit risk

Estimating correctly the borrower credit risks is the task of particular –and growing- importance for the banks all around the globe. Formal information sharing mechanisms are aimed to reduce information asymmetry in the credit markets and to enhance the precision of those estimates. In the academic literature, however, the answer to the question of whether more detailed borrower information accumulated and shared by credit bureaus and credit registries is always associated with higher quality of bank credit portfolios and lower credit risks is not completely unambiguous. More credit information disclosed by information intermediaries tend to result into the weaker disciplinary effect of credit history, which means higher credit risks. At the same time, the accuracy of assessing the creditworthiness of borrowers grows due to an increase in the predictive power of scoring models, which leads to a reduction in credit risk. In this paper we make a first attempt to examine the nonlinearity of this effect. We study the relationship between the depth of the credit information disclosure and the stability of the banking sector in terms of credit risks. Based on data on more than 90 countries for 2004–2020, we show that the relationship between disclosure and credit risk is non-linear: we observe the lowest levels of credit risk at minimum and maximum levels of disclosure depth. We analyze the influence of the country institutional quality and financial development on the nature of the relationship. We show that credit risks decrease with increasing depth of disclosure by credit bureaus and credit registers in in a high-quality institutional environment and in well-developed financial markets.

Total factor productivity growth at the firm-level: The effects of capital account liberalization

This study provides firm-level evidence on the effect of capital account liberalization on total factor productivity (TFP) growth. We find that a one standard deviation increase in the capital account openness indicator constructed by Fernández et al. (2016) is significantly associated with a 0.18 standard deviation increase in firms’ TFP growth rates. The productivity-enhancing effects are stronger for sectors with higher external finance dependence and capital-skill complementarity, and are persistent five years after liberalization. Moreover, we show that potential transmission mechanisms include improved financing conditions, greater skilled labor utilization, and technology upgrades. Finally, we document heterogeneous effects across firm size and tradability, and threshold effects with respect to the country's institutional quality.

Tax Havens and Emerging Market Multinationals: The rRle of Property Rights and Economic Freedom

This paper investigates the relationship between home country institutional quality and EMNEs investing in tax havens. We develop a conceptual framework that adapts the institutional escapism framework, whereby EMNEs expand globally to escape institutional hazards in the home country together with the institutional leverage framework, whereby EMNEs can leverage the home institutions as a competitive advantage. This allows us to conceptually derive and explain the curvilinear (U-shaped) relationship between institutional differences and reforms over time and how this impacts on EMNE strategy towards tax havens. Based on a large cross-country firm level dataset, our empirical results confirm the curvilinear relationship, such that EMNEs from weaker institutional environments are more likely to own tax haven subsidiaries. However, as the emerging country improves it institutional environment, the likelihood of investing in tax haven declines before it increases again at a time when the emerging country has achieved a developmental stage similar to developed countries. Based on our results, we draw several managerial and policy related implications.

International ambidexterity and innovation performance: The moderating role of the host country's institutional quality

Organizational ambidexterity has been employed in the study of international business. Existing studies advocate an ambidextrous internationalization strategy for multinational enterprises in emerging markets (EM MNEs). However, the performance effect and moderating mechanism of international ambidexterity have not been fully explored yet. This study expands the combinative view of organizational learning and institutional perspective, and examines the impact and moderating mechanism of international ambidexterity on firm performance based on 387 Chinese multinationals. This study adopts the questionnaire survey method to obtain the research sample and tests the relationships among variables through multiple regression analysis. The conclusions indicate that both the balanced and combined dimensions of international ambidexterity positively impact innovation performance. Additionally, EM MNEs operating in countries with well-developed institutions are more innovative than those operating in countries with underdeveloped institutions. This study not only promotes the development of internationalization and institutional theories but also guides managers of EM MNEs to formulate internationalization strategies.

Does Institutional Quality Matter for International Migrants in Their Home and Host Country? A Case of Russian Federation (Валей А., Мамман С.О. Имеет ли значение качество институтов для международной миграции в стране происхождения и в стране назначения? Случай Российской Федерации)

Poor institutions have been identified to hinder economic growth and development, with negative social and economic effects such as skilled human resource emigration. In a resource-rich economy, a poor institutional framework has been stated to be a key cause of resource curse. The current study used the CIS and other bordering countries to investigate the impact of both home and destination country institutional quality on migration flows to the Russian Federation. Is the Quality of Institutions (Origin and Host Countries) Important in Migration? The study demonstrated that institutional quality matters for migration from surrounding countries using a gravity-based model estimated using the Poisson Pseudo Maximum Likelihood (PPML). Population, unemployment, and GDP per capita were identified as push factors. In addition, the study discovered a correlation between the institutional quality of the host country and the inward migration flow. Therefore, the study recommends enhancing the institutional quality of the host country to increase the positive effects of inward migration flow

Women's political empowerment and natural resource curse in developing countries

Women's political rights are increasingly recognized as critical to modern states. Women constitute half of the world's population, but they account for less than a quarter of the membership of national parliaments globally. Starting from the “resource curse" literature, this paper empirically examines the impact of natural resource abundance on women's political empowerment in a large panel of 130 developing countries between 2002 and 2017. Our results derived from two-step system GMM show that total resource rent per capita has a strong negative impact on overall women's political empowerment. Similar evidences are found when using women's political participation, civil society participation, and women's civil liberties subindexes separately. We also find large differences in the resource abundance women's political empowerment relationship, depending on a country's institutional quality. Furthermore, we explore some transmission channels and find that resource abundance reduces female employment in the manufacturing and exchangeable service sectors, increases gender inequality in primary and secondary education, and increases female fertility rate.

Does foreign direct investment promote institutional development in Africa?

Foreign direct investment (FDI) inflows into Africa have increased since the turn of the millennium, mainly due to FDI growth into African countries by multinational enterprises (MNEs) from developing economies. While African governments view this growth as a positive development for the continent, many governments in the West have raised concerns regarding the institutional impact of investments from developing economies. This paper examines the impact of FDI flows on institutional quality in African countries by distinguishing investments from developed versus developing economies. Previous empirical studies have found a significant relationship between FDI flows and institutional quality in African countries but regard the relationship as MNEs rewarding African countries for adopting institutional reforms. However, little attention has been paid to the reverse causality, i.e. that FDI can cause an institutional change in African countries. Using bilateral greenfield FDI flows between 56 countries during 2003−2015, we find no significant FDI effect from developed and developing economies on institutional quality in host countries. However, aggregate FDI flows from developed and developing economies have a significant positive effect on host country institutional quality but differ concerning the impact's timing. In contrast, we find no significant effect of FDI flows from China on host country institutional quality. Our results are robust to alternative measures of institutional quality.