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Which Institutions Are Important for Firms Performance? Evidence from Bayesian Model Averaging Analysis

Jarko Fidrmuc (), Svatopluk Kapounek () and Martin Siddiqui ()
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Martin Siddiqui: Zeppelin University in Friedrichshafen, Germany

Panoeconomicus, 2017, vol. 64, issue 4, 383-400

Abstract: Using a rich dataset on individual firms in selected EU countries between 2005 and 2012, we document a surprisingly high share of assets tied in highly inefficient firms. Moreover, we discuss different channels through which institutions may affect firm financial developments and thus the long-run growth. Using Bayesian model averaging analysis, we discuss the importance of different types of economic, financial and political institutions. We show that high institutional quality improves the financial conditions of firms. However, too lax business regulations may worsen firms’ performance possibly due to excessive risk taking behavior.

Keywords: : Institutional quality; Insolvency; Inefficient firms; Bayesian model averaging (search for similar items in EconPapers)
JEL-codes: C33 K23 O43 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:voj:journl:v:64:y:2017:i:4:p:383-400