Institutional quality and market selection in the transition to market economy

Hien Thu Tran

Journal of Business Venturing, 2019, vol. 34, issue 5, -

Abstract: This paper investigates the impact of institutional quality on the productivity, profitability and survival of new entrants versus those of incumbent firms in a transitional setting, Vietnam. By integrating economic and institutional perspectives, we emphasize the importance of institutional quality in shaping the evolution of industry dynamics. We find that poor institutional quality that acts as institutional buffering for incumbents jeopardizes the Schumpeterian market selection process. In particular, despite being more productive and profitable, new entrants are still more likely to exit than incumbents on average. As a consequence, facing poor institutions, only new entrants with sufficiently high productivity and profitability are able to survive. However, improving institutional quality does not enhance new entrants' survival and entrepreneurial performance; rather, it removes the survival advantage of incumbents and thus reduces the differences in performance and exit hazard between new entrants and incumbents. We investigate this seemingly paradoxical relationship using Vietnamese census data from 2006 to 2013.

Keywords: Institutional quality; Industry dynamics; Industry evolution; Industry variation; New entrants; Incumbents; Productivity; Entrepreneurial performance; Exit hazards (search for similar items in EconPapers)
JEL-codes: L10 L25 O25 O43 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbvent:v:34:y:2019:i:5:1

DOI: 10.1016/j.jbusvent.2018.07.001

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