When Institutional Plates Collide: The Dynamic Impact of Informal Institutions on Capital Market Development

Robert Lindorfer, Anne d’Arcy () and Igor Filatotchev
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Robert Lindorfer: Austrian Federal Ministry of Finance, Johannesgasse 5, 1010 Vienna, Austria
Anne d’Arcy: Department of Strategy and Innovation, Vienna University of Economics and Business, Welthandelsplatz 1/D5, 1020 Vienna, Austria
Igor Filatotchev: King’s Business School, King’s College London Bush House, 30 Aldwych, London WC2B 4BG, UK

JRFM, 2023, vol. 16, issue 3, 1-18

Abstract: We provide an institutional theory perspective to examine societal legitimacy in the context of capital market development. While prior research has focused on the importance of formal institutions, firms are embedded within broader socio-economic structures associated with informal institutions. Using content analysis and a unique dataset of 3244 newspaper articles between 2004 and 2013, we develop a dynamic measure capturing the public perception of capital markets as a proxy of informal institutions. We run a Prais–Winsten regression with panel-corrected standard errors to explore the dynamic relationship between public perception of capital markets and equity market size in Austria and Poland. We further theoretically and empirically explore how formal and informal institutions mutually reinforce each other in the context of capital market development. Our results suggest that informal institutions matter differently in developed and emerging economies.

Keywords: capital market development; formal and informal institutions; societal legitimacy; institutional theory; developed and emerging economies (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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