Level Of Institutional Development Research Articles

O Efeito das Instituições sobre o Financiamento Externo das Empresas Brasileiras

Este artigo examina o efeito do nível de desenvolvimento institucional dos diversos estados brasileiros sobre as escolhas de financiamento externos das empresas brasileiras. Nossa análise baseiea-se em um banco de dados único, o Investment Climate Survey (ICS) do Banco Mundial, estratificado para ser representativo em termos de tamanho de empresa, 13 estados da federação e nove setores industriais. Nossos principais resultados indicam que a corrupção e ineficiência do sistema judiciário exercem um efeito negativo sobre o acesso ao financiamento bancário e fontes formais de financiamento. O desenvolvimento financeiro apresenta efeito positivo sobre as mesmas fontes. Além do mais, os efeitos acima são mais severos em empresas pequenas. Estes resultados sugerem que baixo desenvolvimento institucional pode promover repressão financeira, fazendo com que as empresas tenham que recorrer mais intensamente a fontes informais de financiamento ou, de outro modo, limitar seus investimentos. Isso tamém sugere que o baixo desenvolvimento instucional tem o efeito perverso de promover a concentração industrial.

Country institutional context, social networks, and new venture internationalization speed

This paper examines the role of social networks in the internationalization processes of new ventures in contexts characterized by different levels of institutional development. A country’s level of institutional development may have a direct effect on the composition of entrepreneurs’ social networks (i.e., prevalence of strong versus weak ties). Furthermore, both strong and weak ties may have direct, positive effects on the speed of new venture internationalization, but the relative strength of these effects likely depends on a country’s level of institutional development. Building on these arguments, we develop a theoretical model which specifies the rationale entrepreneurs use to draw on their social networks and drive internationalization; the model also enumerates institutional conditions in which different types of network ties tend to be most prominent and valuable.

Fixed Exchange Rates and Disinflation in Emerging Markets: How Large Is the Effect?

We examine developing countries which have institutional quality ratings for the effects of exchange rate rigidity on inflation. The level of institutional development exerts no effect on the impact of currency regimes. However, the interaction of institutional quality and exchange rates has, in the most plausible specifications, a negative impact on inflation. This suggests that fixed exchange rates exert at most a contingent effect on inflation, and indicates that countries in Eastern Europe and Latin America contemplating currency pegs would be better off improving institutional quality prior to adopting the euro or dollar and expecting a large subsequent disinflationary effect.

Which country matters? Institutional development and foreign affiliate performance

AbstractThis article investigates the effect of the level of institutional development of host countries on the level of and variation in foreign affiliate performance. Institutional development is defined as the extent to which the economic, political, and social institutions in a host country are developed and are favorable for foreign affiliates. A longitudinal analysis of over 30,000 foreign affiliate‐year cases that include 6,985 foreign affiliates in 38 host countries between 1996 and 2001 shows that foreign affiliate performance varies noticeably both across and within host countries. The results suggest that the level of institutional development, as determined by the Institutional Development Index (IDI), a new measurement developed in this study, has a strong negative curvilinear relationship with the variation in foreign affiliate performance and a negative effect on the level of foreign affiliate performance. The implications for future research, practice, and policymaking are discussed. Copyright © 2008 John Wiley & Sons, Ltd.

Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding

We present a meta-analysis of the relationship between concentrated ownership and firm financial performance in Asia. At the cross-national level of analysis, we find a small but significant positive association between both variables. This finding suggests that in regions with less than perfect legal protection of minority shareholders, ownership concentration is an efficient corporate governance strategy. Yet, a focus on this aggregate effect alone conceals the existence of true heterogeneity in the effect size distribution. We purposefully model this heterogeneity by exploring moderating effects at the levels of owner identity and national institutions. Regarding owner identity, we find that our focal relationship is stronger for foreign than for domestic owners, and that pure “market” investors outperform “stable” or “inside” owners whom are multiply tied to the firm. Regarding institutions, we find that a certain threshold level of institutional development is necessary to make concentrated ownership an effective corporate governance strategy. Yet we also find that strong legal protection of shareholders makes ownership concentration inconsequential and therefore redundant. Finally, in jurisdictions where owners can easily extract private benefits from the corporations they control, the focal relationship becomes weaker, presumably due to minority shareholder expropriation.

Home Country Institutions As Predictors Of FDI In India

This study focuses on home country institutions as sources of variation in the level of foreign investment into India. Our findings support the idea that institutional voids found in India are less of a deterrent to investments from home countries with high levels of institutional development than from home countries with similar institutional voids. Overall, foreign investments in India are found to be significantly related to the strength of institutions within home countries. The levels of both approved and realized foreign direct investment (FDI) are strongly influenced by economic factors and home country regulative institutions, and weakly influenced by home country cognitive institutions. When considered separately, the cognitive institutions and regulative institutions within a given home country each significantly influence the level of approved/realized FDI into India. However, when considered jointly, only the strength of regulative institutions is predictive of FDI inflows.

META-ANALYZING OWNERSHIP CONCENTRATION AND FIRM PERFORMANCE IN ASIA: TOWARDS A MORE FINE-GRAINED UNDERSTANDING.

We present a meta-analysis of the relationship between concentrated ownership and firm financial performance in Asia. At the cross-national level of analysis, we find a small but significant positive association between both variables. We further unpack this relationship by exploring moderating effects of owner identity and national institutions. We find that our focal relationship is stronger for foreign than for domestic owners, and that pure 'market' investors outperform 'stable' or 'inside' owners whom are often multiply tied to the firm. Regarding institutions, we find that a certain threshold level of institutional development is necessary to make concentrated ownership an effective corporate governance strategy, and that strong legal protection of shareholders makes ownership concentration inconsequential and therefore redundant. Finally, in jurisdictions where owners can easily extract private benefits from the corporations they control, the focal relationship becomes weaker, presumably on account of minority shareholder expropriation.

The Effect of Institutions on the External Financing of the Brazilian Firms

This article examines the effect of the level of institutional development across the different Brazilian states on the choice of external financing of Brazilian firms. Our analysis is based on a unique dataset, the Investment Climate Survey (ICS) of the Worldbank, stratified to be representative across size; 13 federal states; and 9 industry sectors.Our main results indicate that corruption and inefficiency of the judicial system have a negative impact on the access to bank credit and formal sources of funds. Financial development has a positive impact on the use of the same sources. Furthermore, this effect is more severe on smallest firms. These results suggest that low institutional development can foster financial repression, making firms rely more intensively on informal sources of funds or, otherwise, limit their investments. It also suggests that institutional underdevelopment has the perverse effect of promoting industrial concentration.

Meta-Analyzing Ownership Concentration and Firm Performance in Asia: Towards a More Fine-Grained Understanding

textabstractWe present a meta-analysis of the relationship between concentrated ownership and firm financial performance in Asia. At the cross-national level of analysis, we find a small but significant positive association between both variables. This finding suggests that in regions with less than perfect legal protection of minority shareholders, ownership concentration is an efficient corporate governance strategy. Yet, a focus on this aggregate effect alone conceals the existence of true heterogeneity in the effect size distribution. We purposefully model this heterogeneity by exploring moderating effects at the levels of owner identity and national institutions. Regarding owner identity, we find that our focal relationship is stronger for foreign than for domestic owners, and that pure market investors outperform stable or inside owners whom are multiply tied to the firm. Regarding institutions, we find that a certain threshold level of institutional development is necessary to make concentrated ownership an effective corporate governance strategy. Yet we also find that strong legal protection of shareholders makes ownership concentration inconsequential and therefore redundant. Finally, in jurisdictions where owners can easily extract private benefits from the corporations they control, the focal relationship becomes weaker, presumably due to minority shareholder expropriation.

The Galician-Portuguese Lyric and the Hegemonization and Canonization Processes of the Galician Literature

Study of the reception of the Galician-Portuguese lyric and its function in the hegemonization strategies of both Galician literature and Portuguese literature. The ways for the symbolic apropriation uttered by these literatures are determined by the different level of institutional development, because of the minorizated condition of the Galician literature and the hegemonic position of the Portuguese one. However, this confrontment belongs to a wide web of relations based on the cultural continuity between Galicia and Portugal, at least to the 13th and 14th centuries.

Institutions and economic development in Brazil

This paper investigates the effects of institutional reforms in Brazil. It first provides a comparative assessment of the level of institutional development of Brazil with other Latin American countries such as Chile and Argentina. It considers institutional indicators on “ doing private business”, including those related to the start up costs, employment rigidity, the expropriation of private investment and bankruptcy law. In general, Brazil presents a lower level of institutional development than Chile and Argentina. As an example, the number of procedures to start a business in Brazil is roughly twice as large as in Chile. We evaluate the importance of institutional differences on economic development using data for a wide cross-section of countries. As in Acemoglu, Johnson, and Robinson [Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), 1369–1398], we use the European mortality rate in the colonial period and the “legal origin” to exploit exogenous variation in the level of institutions. We identify issues where institutional reforms are likely to significantly affect per capita gross domestic product (GDP), the ratio of private credit to GDP and the ratio of investment to GDP. We then construct three indices developed in Tavares [Tavares, J. (2004). Institutions and economic growth in Portugal: a quantitative exploration. Portuguese Economic Journal, 3, 49–79] that measure the potential of institutional reforms by using institutional distance, in our case between Brazil and Chile. The most promising reforms for the Brazilian economy, as far as their effects on output per capita, are, in decreasing order: (i) reducing the number of procedures to open a business; (ii) decreasing the average time involved in insolvency proceedings; (iii) increasing labor market flexibility; and (iv) increase effective creditor's protection.

Diversification and performance: evidence from East Asian firms

AbstractWe examine the impact of diversification on performance for firms operating in different institutional environments during a relatively stable period and during a major economy‐wide shock. We locate our study in six Asian countries at different levels of institutional development. Results indicate that diversification negatively impacts performance in more developed institutional environments while improving performance only in the least developed environments. Even in the least developed institutional environments, diversification offers limited benefits when an economy‐wide shock strikes. Though successful diversifiers are sometimes affiliated with business groups, diversification is associated with poorer performance for both affiliated firms and independent firms. In sum, we find that the outcomes of diversification are influenced by institutional environments, economic stability and affiliation with business groups. Copyright © 2007 John Wiley & Sons, Ltd.

“We Are the Hawks of Freedom”: Bulgaria’s Good Fishing in the Muddy Waters of the Gulf

Yes, we are hawks. We are the hawks of freedom, humanism and democracy! Solomon Passi Bulgarian Minister of Foreign Affairs 1 1 FocusNews Agency (hereafter Focus), 12 April 2003. Bulgaria’s decision to withdraw its troops from Iraq by the end of 2005 offers an opportunity to asses the country’s contribution to the ‘coalition of the willing.’ Viewed from the outside, Sofia’s instrumental entrepreneurship in Iraq has tended to confirm that within the Balkan region, Bulgaria has one of the highest levels of institutional development and stable civil-military relations. Domestically, however, Sofia’s military mission to Iraq has revealed that the protested institutionalization of its civil-military relations, has in effect amounted to the entrenchment of civil-military rivalries. Consequently, the article traces how these civil-military rivalries have affected the coordination of the Bulgarian armed forces with the coalition partners and also how they have informed the public perception of Bulgaria’s participation in military missions abroad. Finally, and on a positive note, the presence of Bulgarian troops in Iraq has evinced a significant experiential learning on behalf of the military establishment. The novelty of such exploration is that it is premised on discourses and statements aired in Bulgarian media and, thus, makes available the particular domestic public debate informing Sofia’s decision-making. The author wishes to thank Raicho Kavalski and Magdalena Zolkos for their advice and encouragement, and the Izaak Walton Killam Memorial Fund for the generous support. All translations from Bulgarian are made by the author. This article is dedicated to the memory of Slavka Kavalska.

The impact of organisational culture on organisational learning and attitudes concerning change from an institutional perspective

Empirical research in 44 Estonian organisations has indicated the impact of institutional environments on how orientations of organisational culture influence oranisational learning and employee attitudes toward change. Aspects of organisational culture influencing organisational change – task orientation and relationship orientation – have a different impact on the formation of attitudes toward change and organisational learning depending on the level of institutional development at the time that people commenced their working life. The authors propose a model for highlighting the impact of aspects of organisational culture on organisational learning and attitudes toward change in the institutional context.

WORK-RELATED ATTITUDES: A COMPARISON OF ESTONIA AND FINLAND

Although Estonia and Finland are culturally related, according to an empirical study in the electronics industry in the two countries they display significant differences in job‐related attitudes. This paper investigates employees’ attitudes toward society, trade unions, work, employer organisations and pay determinants in the two countries from an institutionalist and cultural perspective. While Finland has experienced almost a century of capitalism and democracy, work‐related attitudes in Estonia have been particularly affected by the 50 years of Soviet rule. It is argued that the differences in work‐related attitudes are influenced inter alia by differences in levels of institutional development.

Institutions and economic development: How strong is the relation?

This paper investigates the relationship between institutions and economic development (output per worker). As in Hall and Jones (1999), we find that a 1% improvement in institutions (as we measure them) generates on average a 5% increase in output per worker. However, this relationship is not linear and the data have important heterogeneity. Countries with the same value of institutions have different levels of income per worker. We ask whether the “returns to institutions” are the same across countries conditional on the level of institutions. Using quantile regression methods, we show that for countries at the top of the conditional distribution of international incomes, the “returns to institutions” are lower (around 3.8%,) than for countries at the bottom of this distribution (around 6.2%). We show that this result is robust for different model specifications and definitions of institutions. We also provide evidence that, conditional on the level of institutional development, the distribution of output per worker tends to become less disperse as countries improve their institutional framework. In other words, having better institutions is essential in order to close the output-per-worker gap across countries. Finally, we provide the rationale behind the results through a modified version of a Neoclassical Growth Model with time varying wedges, representing policy distortions and institutions.

Postprivatization corporate governance: The role of ownership structure and investor protection

We investigate the role of ownership structure and investor protection in postprivatization corporate governance. Using a sample of 209 privatized firms from 39 countries over the period 1980 to 2001, we find that the government relinquishes control over time to the benefit of local institutions, individuals, and foreign investors, and that private ownership tends to concentrate over time. Firm size, growth, and industry affiliation, privatization method, as well as the level of institutional development and investor protection, explain the cross-firm differences in ownership concentration. The positive effect of ownership concentration on firm performance matters more in countries with weak investor protection.

The Political Economy of Deposit Insurance

Laeven uses a political economy framework to analyze cross-country differences in deposit insurance coverage. He finds supporting evidence of the significance of private interest theories in explaining coverage of deposit insurance. Deposit insurance coverage is significantly higher in countries where poorly capitalized banks dominate the market and in countries where depositors are poorly educated. The author does not find that coverage is significantly related to political-institutional variables, such as the degree of democracy or restraints on the executive, or to proxies for the general level of institutional development, such as per capita income or property rights. These results provide evidence in support of the private interest view, according to which risky banks lobby for extensive coverage. This paper - a product of the Financial Sector Operations and Policy Department - is part of a larger effort in the department to study deposit insurance systems.

Institutions and economic growth in Portugal: a quantitative exploration

This paper presents a broad diagnostic of the level of institutional development in Portugal in the legal, corporate governance and financial systems. A comparative assessment suggests that Portuguese institutions are less developed than their European Union and East Asian counterparts, more developed than Greek institutions and on a level similar to that of Spanish institutions. We use data for a wide cross-section of countries since 1960 and correlate indicators of institutional development with the long-term average growth rate, identifying issues where reform is likely to significantly affect economic growth. We construct three new indices that measure the potential of institutional reform - the impact of reform on growth, the required reform effort and the efficiency of reform index - by taking into consideration the institutional “distance” between Portugal and the European Union. These indices measure, respectively, which reforms have the most payoff in terms of growth, which are “less costly” to undertake and which deliver the most growth per required effort. Our results strongly suggest that in a large number of issues, institutional reform may translate into substantially higher rates of economic growth. Of the ten most promising reforms, six are in the legal area, irrespective of which of the indices is considered. Whereas legal reform is promising at the aggregate and the microeconomic levels, in the financial sector aggregate indicators offer the wider scope for productive reform, while in the corporate governance area it is indices at the micro level that hold the most promise. These results support the view that a comprehensive reform effort is likely to deliver higher rates of growth in Portugal, allowing faster real convergence with the rest of the European Union.

The Relative Levels and the Character of Institutional Development in Transition Economies

At present, there is no generally accepted accounting of the institutional strengths and weaknesses of the transition economies. The first goal of the paper is to fill this gap by assessing current levels of institutional development. The second is to examine which types of institutional mechanisms make relatively strong contributions. Extensive empirical evidence shows that institutional quality in transition countries is roughly as expected given per capita incomes. Institutions are improving continuously. Given prevailing assumptions that the institutional situation is dismal, the developments giving rise to this surprising finding must be investigated more fully. This investigation begins by cataloging the mechanisms that could have improved institutional indexes. Then, evidence is examined on the relative strengths of each of these mechanisms. Formal institutions have contributed more than informal ones. The largest contributions have come from formal institutions separate from the state administrative structure. Political institutions, legal systems, and independent governmental agencies have been important.