Oli ei a, Alexand e; Ca alho, Fe nando Manuel Pe ei a Oli ei a; Reis, Nuno Rosa
A icle
Ins i u ional expe ience, o mal ins i u ional quali y, and
i m pe o mance: An analysis o i ms om he Eu opean
Union
BRQ Business Resea ch Qua e ly
P o ided in Coope a ion wi h:
Asociación Cien í ica de Economía y Di ección de Emp esas (ACEDE), Mad id
Sugges ed Ci a ion: Oli ei a, Alexand e; Ca alho, Fe nando Manuel Pe ei a Oli ei a; Reis, Nuno
Rosa (2025) : Ins i u ional expe ience, o mal ins i u ional quali y, and i m pe o mance: An
analysis o i ms om he Eu opean Union, BRQ Business Resea ch Qua e ly, ISSN 2340-9444, Sage
Publishing, London, Vol. 28, Iss. 2, pp. 371-385,
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In oduc ion
Fi ms’ success depends on hei abili y o adap o he qual-
i y o he ins i u ional en i onmen (Cue o-Cazu a,
Mudambi, & Pede son, 2019; Jackson & Deeg, 2008). I
ins i u ions a e he ules o he game (No h, 1991), hen
how i ms adap o he ules o he game emains an impo -
an ques ion (Dau e al., 2020; Kos o a & Hul , 2016;
Peng e al., 2008). The gene al idea is ha i i ms adap o
he quali y o ins i u ions, ollowing ansac ion cos s he-
o y p esc ip ions, i ms will pe o m well o e he long
un (A gy es & Zenge , 2022; Williamson, 1991). Since
ins i u ions in luence ansac ion cos s, ins i u ional qual-
i y can g ea ly a ec how i ms conduc hei ac i i ies and
o ganize o economic success (Henna & Ve beke, 2022).
Thus, i ms should ocus on how o e icien ly adap o he
ci cums ances a hand by add essing he ins i u ional
oppo uni ies and challenges o imp o e hei pe o mance
(A gy es & Zenge , 2012, 2022).
Howe e , Williamson’s “e iciency-as-s a egy” logic
does no ully and sa is ac o ily explain pe sis en pe o -
mance di e ences be ween i ms (A gy es & Zenge , 2012,
Ins i u ional expe ience, o mal
ins i u ional quali y, and i m
pe o mance: An analysis o i ms
om he Eu opean Union
Alexand e Oli ei a1,2 , Fe nando Ca alho2
and Nuno Rosa Reis1,3
Abs ac
Fi ms’ success depends on hei abili y o deal wi h o mal ins i u ional quali y. Speci ically, i ms exposed o a di e si ied
se o ins i u ional p o iles can achie e ins i u ional compe i i e ad an age ha p o ides i ms wi h di e se knowledge and
b oade lea ning oppo uni ies. While p io s udies a gued ha being exposed o a di e si ied se o ins i u ional p o iles
nega i ely in luences i ms because ins i u ional knowledge can only be eplica ed in simila ins i u ional p o iles, hey missed
he poin o lea ning om di e si y. The pu pose o his s udy is o u he unde s and how i ms’ ins i u ional expe ience
mode a es he ela ionship be ween o mal ins i u ional quali y and i ms’ pe o mance. We a gue ha i ms wi h highe
and mo e di e se ins i u ional expe ience will adap mo e e icien ly o o mal ins i u ional quali y, hus imp o ing i ms’
pe o mance. We es he hypo heses on 4,011 publicly aded i ms om he Eu opean Union be ween 2010 and 2021, and
ou esul s show ha i ms ha de elop highe ins i u ional expe ience a e be e able o e icien ly adap o and le e age
o mal ins i u ional quali y and achie e highe i m pe o mance. We con ibu e o he ongoing discussion on how o mal
ins i u ions in luence i ms’ pe o mance by acknowledging he impo ance o de eloping a di e si ied ins i u ional expe ience.
JEL CLASSIFICATION: F23
Keywo ds
Fo mal ins i u ional quali y, i ms’ pe o mance, ins i u ional di e si y, ins i u ional expe ience, Eu opean Union
1
Cen e o Applied Resea ch in Managemen and Economics,
Poly echnic Ins i u e o Lei ia, Lei ia, Po ugal
2 Cen e o Business and Economics Resea ch, Facul y o Economics,
Uni e si y o Coimb a, Coimb a, Po ugal
3 School o Technology and Managemen , Poly echnic Ins i u e o Lei ia,
Lei ia, Po ugal
Co esponding au ho :
Alexand e Oli ei a, Cen e o Applied Resea ch in Managemen and
Economics, Poly echnic Ins i u e o Lei ia, Mo o do Lena–Al o do
Viei o, 2411-901 Lei ia, Po ugal.
Email: [email p o ec ed]
1301067BRQ0010.1177/23409444241301067Business Resea ch Qua e lyOli ei a e al.
esea ch-a icle2024
Regula Pape
372 Business Resea ch Qua e ly 28(2)
2022; Ba ney e al., 2023). Fi ms may de elop esou ces
and capabili ies ha imp o e i ms’ adap a ion o o mal
ins i u ional quali y, which may c ea e pe sis en pe o -
mance di e ences among i ms (G øgaa d & Ve beke,
2012; Henna & Ve beke, 2022; Na ula & Ve beke, 2015).
Speci ically, by being exposed o a di e si ied se o ins i-
u ional p o iles, i ms bene i om di e se knowledge and
b oade lea ning oppo uni ies ha can ansla e in o ins i-
u ional compe i i e ad an ages (Fuen elsaz e al., 2022;
Lundan & Li, 2019). None heless, p io esea ch a guably
missed he poin o lea ning om di e si y (Lumineau e
al., 2021; Lundan & Li, 2019; Pa naik e al., 2021) by pos-
i ing ha ins i u ional knowledge can only be eplica ed i
ob ained om simila ins i u ional p o iles (Pe kins, 2014;
T ąpczyński & Banalie a, 2016). Despi e acknowledging
ha he ins i u ional expe ience, which is a mul idimen-
sional concep o accoun o he simila i y, b ead h, and
dep h o in ol emen in ins i u ional en i onmen s
(Pe kins, 2014), is an impo an sou ce o ins i u ional com-
pe i i e ad an ages (e.g., Domínguez e al., 2023;
Fuen elsaz e al., 2022; Lundan & Li, 2019; T ąpczyński &
Banalie a, 2016), he e is s ill limi ed knowledge on how
i ms gain an ad an age by lea ning om a di e si ied se
o ins i u ional p o iles and bene i om ins i u ional expe-
ience (Lumineau e al., 2021; Pa naik e al., 2021).
The pu pose o his s udy is o u he unde s and how
i ms’ ins i u ional expe ience mode a es he ela ionship
be ween o mal ins i u ional quali y and i ms’ pe o -
mance. We build upon he heo e ical app oach ha i ms
lea n om being exposed o di e si ied se o ins i u ional
p o iles (Lumineau e al., 2021; Pa naik e al., 2021;
Pe kins, 2014). Mo e impo an ly, i ms’ ins i u ional
expe ience can e ol e in o a i m-speci ic esou ce
(Pe kins, 2014), such as di e si ied knowledge, adap a i e
i m p ocesses, and mo e a bi age oppo uni ies (Lundan
& Li, 2019), hus g an ing i ms ins i u ional compe i i e
ad an ages capable o gene a ing pe sis en pe o mance
ad an ages (Fuen elsaz e al., 2022). We a gue ha i ms
wi h highe le els o ins i u ional expe ience will adap
mo e e icien ly o he le el o o mal ins i u ional quali y
o he hos coun y by o e coming ins i u ional ine icien-
cies, while bene i ing om he ins i u ional oppo uni ies,
hus imp o ing i ms’ pe o mance. We es he hypo heses
on an unbalanced panel o 4,011 publicly aded i ms
om he Eu opean Union (EU) be ween 2010 and 2021.
Ou esul s show ha o mal ins i u ional quali y has a
posi i e e ec on i ms’ pe o mance h ough he minimi-
za ion o ansac ion cos s. Also, we con i m ha i ms ha
ha e a highe le el o ins i u ional expe ience a e be e
able o e icien ly adap o o mal ins i u ional quali y and
hus achie e highe i m pe o mance.
We con ibu e o he In e na ional Business (IB) li e a-
u e by adding o he ongoing discussion on he e ec o
o mal ins i u ional quali y on i ms’ pe o mance in wo
ways. Fi s , we con ibu e o u he unde s and why
p e ious esea ch on his ela ionship yielded mixed
esul s (e.g., Banalie a e al., 2018; Cha i & Banalie a,
2015; Cue o-Cazu a & Dau, 2009) by adding o he
a gumen ha i ms di e in hei abili y o bene i om
he o mal ins i u ional quali y (Cue o-Cazu a,
Mudambi, & Pede son, 2019; Dau e al., 2020; Ka ou os
& Aliye , 2016a, 2016b; Ka ou os e al., 2022, 2024). We
ollow a call om Dau e al. (2020) o u he del e in o
he s a ing posi ion o he i m ha allows i ms o e i-
cien ly adap o he o mal ins i u ional quali y, by combin-
ing he ins i u ional app oach wi h i ms’ esou ces ha a e
de eloped as a consequence o i ms’ ansac ions (A gy es
& Zenge , 2012, 2022; Ba ney e al., 2023). We a gue ha
i ms ha de elop supe io esou ces (G øgaa d &
Ve beke, 2012; Na ula & Ve beke, 2015), such as highe
ins i u ional expe ience, a e be e able o adap o he o -
mal ins i u ional quali y and achie e pe o mance ad an-
ages (Henna & Ve beke, 2022).
Second, we con ibu e o shed ligh on he ongoing
deba e ega ding he impo ance o de eloping a di e si-
ied ins i u ional expe ience. We ollow a call om
T ąpczyński and Banalie a (2016) o u he add ess he
mixed indings on he in luence o ins i u ional expe ience
on i ms’ pe o mance. Lea ning om simila en i on-
men s p o ides inc eased syne gies om simila ou ines,
while lea ning om dissimila en i onmen s may cause
penal y e ec s om un ela ed lea ning (Pe kins, 2014;
T ąpczyński & Banalie a, 2016). We con ibu e o he he-
o e ical iew o lea ning om di e si y (Lumineau e al.,
2021; Lundan & Li, 2019; Pa naik e al., 2021), by a gu-
ing and con i ming ha i ms exposed o a di e si ied se
o ins i u ional p o iles a e able o achie e ins i u ional
compe i i e ad an age ha p o ides i ms wi h di e se
knowledge and b oade lea ning oppo uni ies (Fuen elsaz
e al., 2022; Lundan & Li, 2019). Empi ically, we p opose
a mul idimensional measu e o ins i u ional expe ience
ha combines he dep h and b ead h o i ms’ ins i u ional
expe ience, by accoun ing o he in ensi y, di e si y, and
dis ance o ins i u ional expe ience, ha o e comes sho -
comings o p e ious measu emen s o ins i u ional expe i-
ence (see he e iew by T ąpczyński & Banalie a, 2016).
Li e a u e e iew
Ins i u ional economics conside s ins i u ions as con-
s ain s guiding economic ac ions and beha io s (Cue o-
Cazu a, Mudambi, & Pede son, 2019). Fo mal ins i u ions
a e de ined as a se o explici and codi ied ules o he
game (No h, 1991). As ma ke ansac ions a e deemed
impe ec due o bounded a ionali y, oppo unism, and
in o ma ion asymme ies, ma ke ansac ions equi e
guidance o be e icien (No h, 1990, 1991; Williamson,
1975, 2000). Consequen ly, ins i u ions ha e been de ised
o c ea e o de and educe unce ain y in exchange (No h,
1990, 1991). Toge he wi h he s anda d cons ain s o
Oli ei a e al. 373
economics, ins i u ions de e mine he ansac ion cos s
(No h, 1991). The e o e, ins i u ional economics ocuses
on he ansac ion cos s associa ed wi h ei he using ma -
ke s o i ms as al e na i e ins umen s o comple ing a
ela ed se o ansac ions (Williamson, 1975).
A coun y is conside ed o ha e highe o mal ins i u-
ional quali y when he laws and egula ions acili a e ma -
ke ela ionships among economic ac o s (Cue o-Cazu a,
Mudambi, & Pede son, 2019). Fo mal ins i u ional quali y
is de ined as he o e all e ec i eness and e iciency in
helping i ms engage and gain om ma ke ansac ions
(Ka ou os e al., 2022). Thus, o mal ins i u ional quali y is
e lec ed in he quali y o he w i en ules o he game, and
he e ec i eness o en o cing mechanisms du ing eco-
nomic ansac ions (Williamson, 2000). Fo example, o -
mal ins i u ional quali y includes e icien w i en laws, he
quali y o go e nmen egula ion, he exis ence o p ope y
igh s, judicial independence and e ec i eness, he e icacy
o he legal sys em, and execu ion o undue in luence by
go e nmen o icials (Ka ou os e al., 2022; No h, 1991).
Fo mal ins i u ional quali y is b oadly acknowledged o
in luence i ms’ pe o mance (Banalie a e al., 2018; Dau
e al., 2020; Ka ou os e al., 2024). On he one hand, ma -
ke ansac ions unde highe o mal ins i u ional quali y
occu in he o m o mo e e icien w i en ules o he
game, wi h mo e e icien en o cemen mechanisms,
he eby p o iding i ms wi h educed oppo unis ic beha -
io and less in o ma ion asymme ies (Banalie a e al.,
2018; Ka ou os & Aliye , 2016a, 2016b; Ka ou os e al.,
2022). Thus, highe o mal ins i u ional quali y in luences
posi i ely i ms’ pe o mance, as mo e e icien ma ke
mechanisms educe ansac ion cos s (Cue o-Cazu a &
Dau, 2009; Ka ou os & Aliye , 2016a; Ka ou os e al.,
2022). On he o he hand, highe o mal ins i u ional qual-
i y may also nega i ely in luence i ms’ pe o mance
(Cha i & Banalie a, 2015; Cha i & Da id, 2012), as e i-
cien ma ke mechanisms inc ease i ms’ compe i ion, hus
leading o he edis ibu ion o income a he han inc eased
income (Cha i & Banalie a, 2015; No h, 1991). The e o e,
he ela ionship be ween o mal ins i u ional quali y and
i ms’ pe o mance yields mixed and inconclusi e esul s
(Chan & Du, 2021; Cue o-Cazu a, Mudambi, &
Pede son, 2019; Fuen elsaz e al., 2022).
Se e al heo e ical insigh s ad ance possible explana-
ions o he ex an mixed and con lic ing esul s ega ding
o mal ins i u ional quali y. Mo i es such as he concep u-
aliza ion and measu emen o ins i u ions (Aguile a &
G øgaa d, 2019; Cue o-Cazu a, Mudambi, & Pede son,
2019), he dynamics o ins i u ional heo y (e.g., ins i u-
ional change, synch oniza ion, p edic abili y, and agil-
i y; Banalie a e al., 2018; Cue o-Cazu a, Gau , &
Singh, 2019; Fuen elsaz e al., 2022; Shi e al., 2017), and,
a guably mo e impo an ly, he i ms’ cha ac e is ics
de ine i ms’ abili y o deal wi h o mal ins i u ional qual-
i y (Dau e al., 2020). Thus, p e ious mixed indings
sugges ha no all i ms bene i he same way om o mal
ins i u ional quali y (Cue o-Cazu a, Mudambi, &
Pede son, 2019; Dau e al., 2020; Ka ou os e al., 2022).
As ansac ion cos s heo y does no ully explain why
some i ms migh ope a e mo e e icien ly han o he s
(A gy es & Zenge , 2012, 2022; Ba ney e al., 2023), IB
schola s ha e been shi ing ocus o he de elopmen o
i m esou ces and capabili ies, as compe i i e ad an ages
o e icien ly adap o o mal ins i u ional quali y (A gy es
& Zenge , 2012, 2022; Ba ney e al., 2023; Henna &
Ve beke, 2022) o explain i ms’ pe o mance.
The s a egic heo y o he i m o e s a no el iew o he
combina ion be ween ins i u ional app oaches and i ms’
esou ces and capabili ies as he di ec ou g ow h o i ms’
ansac ions, capable o c ea ing pe sis en pe o mance di -
e ences among i ms (A gy es & Zenge , 2022; Ba ney e
al., 2023). I complemen s p io s udies ha ound ha spe-
ci ic i ms’ cha ac e is ics dis inguish mo e success ul i ms
om less success ul ones depending on he le el o o mal
ins i u ional quali y (Ka ou os & Aliye , 2016a, 2016b;
Ka ou os e al., 2022). Fo example, la ge i ms ha in e -
nalize ma ke unc ions ha a e no e icien ly acqui ed
h ough ma ke mechanisms ob ain a compe i i e ad an age
o e i als in lowe quali y ins i u ional en i onmen s
(Ka ou os e al., 2022). Also, subsidia ies’ capabili ies we e
ound o be a use ul mechanism in lowe ins i u ional quali y,
since subsidia ies’ in angible asse s we e ound o enhance
i ms’ g ow h in highe ins i u ional quali y (Ka ou os &
Aliye , 2016b). And i ms ha ope a ed in e na ionally we e
ound o adap mo e e icien ly o he ins i u ional quali y
because i ms ha acqui ed ma ke knowledge and capabili-
ies ab oad we e able o use he knowledge in home coun y
(Dau, 2013; Fuen elsaz e al., 2022).
Howe e , he o ganiza ional lea ning li e a u e has also
p o ided mixed indings ega ding how ins i u ional expe-
ience a ec s i ms’ pe o mance (T ąpczyński &
Banalie a, 2016). The po en ial bene i s a e ela ed o he
lea ning syne gies om simila memo ized ou ine om
simila ins i u ional p o iles, while he po en ial hind ances
a e ela ed o he penal y e ec om un ela ed lea ning
(Pe kins, 2014; T ąpczyński & Banalie a, 2016). Thus, i
is no clea how i ms can lea n om ins i u ional di e si y
(see Lumineau e al., 2021; Pa naik e al., 2021), speci i-
cally conside ing he di e si ied knowledge, adap a i e
i m p ocesses, and mo e a bi age oppo uni ies (Lundan
& Li, 2019) ha g an i ms wi h ins i u ional compe i i e
ad an ages capable o gene a ing pe sis en pe o mance
ad an ages (Fuen elsaz e al., 2022). Al hough ecen s ud-
ies dis inguished be ween he dep h and b ead h o ins i u-
ional expe ience, and be ween simila and dissimila
ins i u ional expe ience, he e is a misconcep ion ha he
deg ee o i ms’ in e na ionaliza ion equals o ins i u ional
expe ience. The e is a need o acknowledge ha wo i ms
wi h he same numbe o o eign subsidia ies and ope a -
ing in he same numbe o o eign coun ies can be exposed
374 Business Resea ch Qua e ly 28(2)
o di e en le els o ins i u ional di e si y (Lundan & Li,
2019; Wu e al., 2015). The e o e, he ole o i ms’ ins i-
u ional expe ience in he ela ionship be ween o mal
ins i u ional quali y and i ms’ pe o mance equi es addi-
ional a en ion.
Concep ual model
Fo mal ins i u ional quali y and i ms’ pe o mance
Signi ican di e ences in he quali y o o mal ins i u-
ions can no ably a ec how i ms ope a e and o ganize
o economic success (Henna & Ve beke, 2022).
Howe e , how one i m adap s mo e e icien ly han
ano he o he en i onmen depends on he gi en ci cum-
s ances a hand. The e o e, we i s need o de ine he
ci cums ances a hand based on he le el o o mal ins i-
u ional quali y ( he e ec i eness o laws and egula ions
combined wi h he o mal en o cemen ) ha conse-
quen ly de ine he le el o ins i u ional haza ds (e.g.,
oppo unism and in o ma ion asymme y) ha i ms mus
cope wi h. Hence, as o mal ins i u ions a ain highe
quali y, we expec all i ms o minimize ansac ion cos s
unde mo e e ec i e o mal ins i u ions, he eby inc eas-
ing i ms’ pe o mance.
In he con ex o lowe o mal ins i u ional quali y, he
w i en ules o he game a e ine icien and unclea , accom-
panied by ine ec i e en o cing mechanisms, hus dec eas-
ing he o e all e ec i eness o engaging and gaining om
ma ke ansac ions. Acco ding o weal h-maximizing
beha io and asymme ic in o ma ion, p ac ically e e y
indi idual has some ad an age o e all o he s by possess-
ing unique in o ma ion (Williamson, 1975). As a esul , no
only do con ac ual ela ions un unde g ea e le els o
in o ma ion asymme y bu also con ac ual ela ions ace
highe isks o oppo unis ic beha io (No h, 1991;
Williamson, 2000), hus making con ac ual ela ions
inc easingly cos ly, incomple e, and wi hou any con ac
en o cemen mechanism. Mo eo e , lowe o mal ins i u-
ional quali y p esen s limi ed oppo uni ies o gene a e
income, since ine icien ins i u ions—such as poo p o ec-
ion o p ope y igh s—p e en app op ia ion o alue and
de e in es men s. The e o e, in he con ex o lowe o mal
ins i u ional quali y, we expec ansac ion cos s o inc ease
due o highe le els o oppo unism and in o ma ion asym-
me ies, hus diminishing he i m’s pe o mance.
In he con ex o highe o mal ins i u ional quali y, he
w i en ules o he game a e e icien and clea e , accom-
panied by e ec i e en o cing mechanisms, hus inc easing
he o e all e ec i eness and quali y o engaging and gain-
ing om ma ke ansac ions. E icien o mal ins i u ions
will dec ease in o ma ion asymme ies and unce ain ies,
while also diminishing he po en ial o oppo unis ic
beha io . Fo example, i ms a e no longe expec ed o
ace addi ional cos s o ob aining in o ma ion and en o c-
ing con ac s, since mo e e icien anspa ency equi e-
men s and e icien cou sys ems educe he cos s in ol ed
in con ac s. Mo eo e , highe o mal ins i u ional quali y
also c ea es oppo uni ies o mo e income—e en i e i-
cien ma ke mechanisms inc ease i ms’ compe i ion
(Cha i & Banalie a, 2015; Cha i & Da id, 2012). The
ins i u ional oppo uni ies include he public in es men s
in in as uc u e such as educa ion ha acili a es he
de elopmen o human capi al and knowledge ans e
(Ka ou os e al., 2022). Fo example, e ec i e p o ec ion
o p ope y igh s, such as pa en s and copy igh s, will help
i ms app op ia e alue om hei inno a ions (Ka ou os
e al., 2022), by using e icien ma ke mechanisms o sell
o license hei inno a ions. Consequen ly, highe o mal
ins i u ional quali y allows i ms o employ hei compe i-
i e ad an ages in ma ke ansac ions. The e o e, we
a gue ha in he con ex o highe o mal ins i u ional
quali y, i ms will be mo e capable o bene i ing om he
ma ke oppo uni ies, wi h lowe ansac ion cos s, hus
enhancing i ms’ pe o mance (Figu e 1). Hence, we
hypo hesize he ollowing:
Figu e 1. Concep ual model.
Oli ei a e al. 375
Baseline hypo hesis 1 (H1). Fo mal ins i u ional quali y
has a posi i e e ec on i ms’ pe o mance.
Fo mal ins i u ional quali y and i ms’
ins i u ional expe ience
The s a egic heo y o he i m (A gy es & Zenge , 2012,
2022; Henna & Ve beke, 2022) o e s an explana ion as
o how i ms, by de eloping i ms’ esou ces (e.g., ins i u-
ional expe ience), can e icien ly adap o o mal ins i u-
ional quali y and c ea e pe sis en pe o mance di e ences
(Lundan & Li, 2019; Pe kins, 2014). We de ine ins i u-
ional expe ience as he expe ien ial lea ning de i ed om
knowledge acqui ed by being exposed o hos coun y’s
ins i u ional p o ile (Pe kins, 2014). Ou heo e ical
app oach emphasizes lea ning om ins i u ional di e si y
(Lumineau e al., 2021; Pa naik e al., 2021), meaning
being exposed o a di e si ied se o ins i u ional p o iles
ha allow i ms o adap mo e e icien ly o o mal ins i u-
ional quali y (Dau, 2013; Fuen elsaz e al., 2022; Pe kins,
2014). Thus, ins i u ional compe i i e ad an ages a e he
dis inc i e knowledge and a ionali y, ob ained om he
in e ac ion wi h a di e si ied se o ins i u ional p o iles,
capable o gene a ing u u e economic alue (Fuen elsaz
e al., 2022). We expec i ms wi h highe ins i u ional
expe ience o be e adap o o mal ins i u ional quali y
and inc ease i ms’ pe o mance.
In he con ex o lowe o mal ins i u ional quali y, he
w i en ules o he game a e ine icien and unclea ,
accompanied by ine ec i e en o cing mechanisms, hus
dec easing he o e all e ec i eness o engaging and gain-
ing om ma ke ansac ions. We a gue ha i ms wi h
highe ins i u ional expe ience will be be e able o p o ec
agains he inc eased isks and unce ain y, and he ma ke
ailu es p o ided by lowe o mal ins i u ional quali y.
Since lowe o mal ins i u ional quali y inc eases he isk
and unce ain y associa ed wi h he lack o con ac
en o cemen , in o ma ion asymme y, and he po en ial o
oppo unis ic beha io , aking e icien s a egic decisions
becomes a challenging ask (Fuen elsaz e al., 2022). Thus,
i ms may need o p o ec hemsel es agains he isk o
incu ing addi ional ansac ion cos s. Fi ms wi h lowe
ins i u ional expe ience will no be able o a oid he exis -
ing ansac ion cos s, since hey ail o pu in place addi-
ional con ac en o cemen mechanisms, o access
addi ional in o ma ion, o e en o iden i y ma ke ansac-
ions ha a e abou o be made unde oppo unis ic beha -
io . Hence, we a gue ha he pe o mance-consequences
disad an ages o lowe o mal ins i u ional quali y will be
s onge o i ms wi h lowe ins i u ional expe ience han
o i ms wi h highe ins i u ional expe ience.
In he con ex o highe o mal ins i u ional quali y, he
w i en ules o he game a e e ec i e and clea e , accom-
panied by e ec i e en o cing mechanisms, hus inc easing
he o e all e ec i eness and quali y o engaging and gain-
ing om ma ke ansac ions. As i depends on he i m’s
abili y o bene i om he ins i u ional oppo uni ies, i ms
wi h highe ins i u ional expe ience will be be e able o
capi alize on he oppo uni ies and maximize alue c ea-
ion. Fo ins ance, highe o mal ins i u ional quali y
inc eases he e ec i eness o laws and egula ions, which
p o ide oppo uni ies o i ms o engage in ma ke ans-
ac ions wi h lowe ansac ion cos s. The educed ansac-
ion cos s p o ide i ms wi h addi ional esou ces ha can
be u he augmen ed in he a o able ins i u ional oppo -
uni ies iden i ied by he i ms wi h highe ins i u ional
expe ience. Thus, he imp o ed knowledge and lea ning
will u he bene i i ms om he pe o mance-enhancing
mechanisms ha he coope a i e solu ions in he ma ke
p o ide. We a gue ha he posi i e e ec o o mal ins i u-
ional quali y on i ms’ pe o mance will be s onge o
i ms wi h highe ins i u ional expe ience han o i ms
wi h lowe ins i u ional expe ience.
In sum, we hypo hesize ha a highe le el o i ms’
ins i u ional expe ience posi i ely mode a es he ela ion-
ship be ween o mal ins i u ional quali y and i ms’ pe o -
mance, such as i ms wi h highe ins i u ional expe ience
will bene i om g ea e maximiza ion o alue c ea ion
while minimizing ansac ion cos s in bo h lowe and
highe o mal ins i u ional quali y when compa ed o i ms
wi h lowe ins i u ional expe ience. Hence, we hypo he-
size he ollowing:
Hypo hesis 2 (H2). The i ms’ ins i u ional expe ience
posi i ely mode a es he ela ionship be ween he o -
mal ins i u ional quali y and i ms’ pe o mance, such
as he highe he le el o i m ins i u ional expe ience,
he s onge he posi i e e ec o o mal ins i u ional
quali y on i ms’ pe o mance.
Me hod
Resea ch on he opic o ins i u ional quali y and i ms’
pe o mance has la gely assumed ha de eloped econo-
mies a e no p ominen in se ing he ield o heo e ical
de elopmen s (Dau e al., 2020; Mi oshnychenko e al.,
2023), hus mos esea ch ocused on eme ging (Banalie a
e al., 2018; Cha i & Banalie a, 2015; Ka ou os e al.,
2022, 2024), de eloping economies (Cue o-Cazu a &
Dau, 2009; Dau, 2013), and ansi ion economies
(Ka ou os & Aliye , 2016a, 2016b). Howe e , his
assump ion led o speci ic cha ac e is ics o he coun ies
no p ope ly accoun ed o . Especially in he EU, whe e
he ecen majo expansions (e.g., CEE coun ies) led o
he applica ion o con e gen mechanisms (Ble ins e al.,
2016) imposed by o he go e nmen s o sup ana ional
en i ies, wi h limi ed abili y o e use o adop ano he
ins i u ional model (Cue o-Cazu a, Gau , & Singh,
376 Business Resea ch Qua e ly 28(2)
2019). None heless, he eme gence o a con e gen ins i u-
ional en i onmen appea s o be illusi e as he ins i u-
ional di e gence be ween EU membe s emains signi ican
(Ble ins e al., 2016; Jaklič e al., 2020; Meye & Peng,
2016), hus making he EU a s ill p omising esea ch a ea
o p o iding esea ch ou pu s beyond he EU (Jaklič e al.,
2020).
Da a collec ion and sample
We cons uc ed a da ase o publicly aded i ms om he
EU. The coun ies ha a e EU membe s a e Aus ia, Belgium,
Bulga ia, C oa ia,1 Republic o Cyp us, Czech Republic,
Denma k, Es onia, Finland, F ance, Ge many, G eece,
Hunga y, I eland, I aly, La ia, Li huania, Luxembou g,
Mal a, he Ne he lands, Poland, Po ugal, Romania, Slo akia,
Slo enia, Spain, Sweden, and he Uni ed Kingdom.2 We
iden i ied a o al o 13,356 publicly ac i e a ailable i ms in
he EU be ween 2010 and 2021. We selec ed i ms’ uncon-
solida ed accoun s o exclude he inancial e ec o i ms’
subsidia ies. Fu he mo e, we excluded obse a ions wi h
missing in o ma ion and inancial ype i ms. The inal alid
N lis wise consis ed o 48,132 o al obse a ions, om a o al
o 28 coun ies om he EU and 4,011 o al companies, o a
ime window o 12 yea s, be ween 2010 and 2021. The da a
we e ob ained om he O bis Eu ope Da abase, which is
compiled by Bu eau an Dijk (B D) and includes compa a-
ble inancial da a o EU i ms.
Dependen a iable
The dependen a iable was he i m’s pe o mance,
de ined as he i m’s p o i abili y each yea . We used sin-
gle accoun ing-based measu es because he single accoun -
ing-based measu es we e ound o be signi ican in he
ela ionship be ween ins i u ions and i ms’ pe o mance
(see Kos o a e al., 2020). Thus, we used e u n on equi y
(ROE), which is he a io be ween yea ly ne income and
sha eholde s’ equi y, in pe cen age, wi h da a collec ed in
he O bis Eu ope da abase.
Independen a iables
The independen a iable o mal ins i u ional quali y
e e s o he o e all e ec i eness and e iciency o he
coun y’s o mal ins i u ions guiding economic ansac-
ions (Ka ou os e al., 2022). While bo h he Economic
F eedom Index (EFI) and Wo ldwide Go e nance
Indica o s (WGI) a e commonly used o measu e ins i u-
ional quali y (see Kos o a e al., 2020), we a gue ha he
WGI is be e sui ed o ou esea ch ques ion as i cap-
u es he pe cep ions o coun y’s o mal ins i u ional qual-
i y ega ding he quali y o laws and egula ions and he
e ec i eness o en o cemen mechanisms. The WGI com-
p ises six pilla s: (1) Voice and accoun abili y, (2)
Regula o y quali y, (3) Poli ical s abili y and absence o
iolence/ e o ism, (4) Rule o law, (5) Go e nmen e ec-
i eness, and (6) Con ol o co up ion (Wo ld Bank). Each
o he six pilla s o WGI is g aded on a scale om −2.5 o
2.5, such ha a highe alue means a highe o mal ins i u-
ional quali y. To agg ega e he da a o he six pilla s, we
an a con i ma o y ac o analysis, which e ained a single
ac o wi h 86.35% o al a iance explained (KMO = 0.92,
p- alue = .00).
Mode a ing a iable
The mode a ing a iable ins i u ional expe ience e e s o
he expe ien ial lea ning de i ed om knowledge acqui ed
om being exposed o hos coun y’s ins i u ional p o ile
(Pe kins, 2014). Ou heo e ical app oach emphasizes
lea ning om con ex ual he e ogenei y while being
exposed o a di e si ied se o ins i u ional p o iles
(Lumineau e al., 2021; Pa naik e al., 2021) ha allow
i ms o adap mo e e icien ly o o mal ins i u ional
quali y (Dau, 2013; Fuen elsaz e al., 2022; Pe kins,
2014). We build upon he ideas o Pe kins (2014) and
T ąpczyński and Banalie a (2016) o de ine a mul idi-
mensional measu e ha conside s bo h he b ead h and
dep h o i ms’ ins i u ional expe ience. To do so, we
adap ed he app oach o Mille e al. (2016) o p opose he
h ee ace s o i m’s ins i u ional expe ience, namely
ins i u ional in ensi y, ins i u ional di e si y, and ins i u-
ional dis ance.
Ins i u ional in ensi y cap u es he dep h o i ms’ ins i-
u ional expe ience de ined as he deg ee o i ms’ o eign
ope a ions, measu ed by he o al numbe o o eign sub-
sidia ies (T ąpczyński & Banalie a, 2016). Ins i u ional
di e si y cap u es he b ead h o i ms’ ins i u ional expe-
ience de ined as he deg ee o a iance be ween he hos
coun ies’ o mal ins i u ional p o iles (Zhao e al., 2020).
We measu ed ins i u ional di e si y by he s anda d de ia-
ion o he se o hos coun ies’ o mal ins i u ional p o-
iles ha i ms ha e been exposed o (Wu e al., 2015;
Zhao e al., 2020). Ins i u ional dis ance cap u es he
deg ee o c oss-na ional di e ences o o mal ins i u ional
quali y be ween he i m’s home coun y and he se o
hos coun ies o i s o eign subsidia ies (Mille e al.,
2016). We measu ed ins i u ional dis ance by calcula ing
he dis ance be ween he home coun y and each hos
coun y WGI indica o , which p oduced a single ac o
wi h a o al a iance explained o 89.25% (KMO = 0.92,
p- alue = .00) when using a p incipal componen ac o
analysis wi h a imax o a ion. Finally, we cons uc ed a
mul idimensional measu e o ins i u ional expe ience con-
sis ing o he h ee ace s, ha by using p incipal compo-
nen ac o analysis wi h a imax o a ion, p oduced a
single ac o wi h a o al a iance explained o 65.90%
(KMO = 0.58, p- alue = .00; see Supplemen al Appendix
A1 o addi ional in o ma ion).
Oli ei a e al. 377
Con ol a iables
The con ol a iables cap u e a ia ions a he coun y
le el and i m le el. A he coun y le el, we included he
coun y size (measu ed using he na u al loga i hm o he
coun y’s GDP in cons an dolla s) and coun y g ow h (as
a pe cen age o o al GDP g ow h yea o e yea ) o
accoun o he domes ic ma ke s’ oppo uni ies, in con-
s an USD, o isola e he e ec s o p ice changes. La ge
ma ke s may p o ide i ms wi h g ea e oppo uni ies, hus
in luencing i ms’ pe o mance (Banalie a e al., 2018;
Fuen elsaz e al., 2022; Shi e al., 2017). We also included
he coun y FDI de ined as he o eign di ec in es men
ecei ed by he home coun y, measu ed as a pe cen age o
ne FDI in lows o e o al GDP. Highe inwa d FDI may
b ing abou g ea e compe i ion, hus hinde ing i ms’ abil-
i y o pe o m (Banalie a e al., 2018; Shi e al., 2017). The
da a we e ob ained om he Wo ld Bank Da abase. Finally,
we included coun ies’ dummies (28 coun y dummies).
A he i m le el, i m size cap u es he scale o
esou ces, measu ed using he na u al loga i hm o he
i m’s o al asse s in housands o dolla s. We expec la ge
i ms o ha e g ea e le els o esou ces, hus bene i ing
om in e naliza ion ad an ages (Ka ou os & Aliye ,
2016b; Ka ou os e al., 2022). We included i m age,
which ela es o he i m’s expe ience in he coun y, meas-
u ed using he na u al loga i hm o he numbe o yea s
since ounda ion plus one (Banalie a e al., 2018; Shi e
al., 2017). Olde i ms may be mo e p o i able because
hey a e mo e es ablished in he ma ke (Banalie a e al.,
2018; Fuen elsaz e al., 2022). We included i m liquidi y,
which is he i m’s abili y o pay i s sho - e m deb . Fi ms
wi h g ea e deb may be mo e p one o pu sue mo e sho -
e m s a egies wi h ce ain payo s o co e hei liabili ies
(Banalie a e al., 2018). We included o eign i m de ined
as he majo i y o a i m’s capi al being o eign capi al. To
iden i y whe he a i m is o eign, we used he in o ma ion
on he Global Ul ima e Owne (GUO). We c ea ed a bina y
a iable whe e we classi ied wi h o eign i m = 1 when
he coun y o he GUO was di e en han he i m’s home
coun y, and ze o o he wise. Finally, we included indus y
dummies using he NACE e . 2 main ca ego ies o he
i ms’ indus y (ca ego y A o U, a o al o 21 indus y
dummies we e included; Shi e al., 2017). The da a we e
ob ained om he O bis Eu ope da abase.
Finally, we included he yea dummies (12 yea s) o
con ol o yea - ixed e ec s in all ou models (Fuen elsaz
e al., 2022; Shi e al., 2017).
P ocedu e o analysis
Ou dependen a iable i ms’ pe o mance may p esen
ine ia o e ime, as cu en alues may be a ec ed by he
pe o mance o p io pe iods. Fo his eason, we use
dynamic panel da a analysis o con ol possible endogene-
i y by including he lag o he dependen a iable
(e.g., Fuen elsaz e al., 2022). The Gene alized Me hod o
Momen s (GMM) es ima o p oduces dynamic es ima es
ha a e consis en in he p esence o endogenei y p oblems
(A ellano & Bond, 1991). We ollowed he alida ion o
GMM es ima o s used in Fuen elsaz e al. (2022) and i
equi es h ee es s: (1) he Hansen es , (2) he es o
AR(2), and (3) he Wald-Chi es s. Fi s , he Hansen s a is-
ic o excessi e iden i ica ion es ic ions is used o p o e
he absence o co ela ion be ween he ins umen s and he
e o e m. The esul o he es is s a is ically nonsigni i-
can , wi h le els o signi icance be ween 0.15 and 0.16,
he e o e he e is no o e iden i ica ion ( he ins umen s a e
alid). Second, o p o e ha e o e ms a e unco ela ed,
he model’s e o e ms a e equi ed o no be second-o de
co ela ed (as e idenced by he lack o signi icance o he
AR(2) es ). Thi d, he Wald-Chi es s a e p esen ed o
measu e he join signi icance o he a iables in he mod-
els, hus all he Wald es s suppo he join impo ance o
he coe icien s.
Resul s
Table 1 p o ides he desc ip i e s a is ics—means and
s anda d de ia ions—and he co ela ions ma ix. We p o-
ide addi ional uns anda dized desc ip i e s a is ics o he
a iables ha we e mean cen e ed in Table 1. Rela ed o
i ms’ pe o mance, we no e ha i ms ha e on a e age
1.87% (SD, 48.93) on ROE. We no e ha o mal ins i u-
ional quali y has a mean alue o 1.03, wi h a s anda d
de ia ion o 0.53. Rela ed o he i m’s ins i u ional expe i-
ence, we no e ha i ms ha e on a e age 20.12 (SD, 82.86)
o al o eign subsidia ies, wi h an a e age ins i u ional
di e si y o 0.25 (SD, 0.35), and an a e age ins i u ional
dis ance o each o mal ins i u ional dimension be ween
0.30 and 0.47. We no e ha i ms ha e an a e age i m size
o 433.67 million dolla s o o al asse s (SD, 161.18 mil-
lion dolla s o o al asse s) and an a e age i m age o
33.24 yea s old (SD, 33.87). Finally, we did no iden i y
any high co ela ions in ou da a (Table 1), sugges ing ha
ou esul s a e absen o mul icollinea i y.
Hypo heses es ing
We s a ou analysis by es ima ing a dynamic eg ession
model o he p edic i e a iable i ms’ pe o mance. Thus,
Table 2 epo s he ob ained esul s. In model 1, we include
only he con ol a iables. In model 2, we include he inde-
penden a iable o mal ins i u ional quali y. In model 3,
we include he mode a ing a iable ins i u ional expe i-
ence, and we p o ide he ull model wi h all he a iables
and in e ac ions included in he concep ual model, whe e
we es H1 and H2.
In model 3 o Table 2, we es ed he H1. We a gued ha
o mal ins i u ional quali y has a posi i e e ec on i ms’
pe o mance. A posi i e and signi ican coe icien in
378 Business Resea ch Qua e ly 28(2)
Table 1. Desc ip i e s a is ics and co ela ions.
Va iable M SD VIF12345678910
1. Fi ms’ pe o mance 1.87 48.93 1.00
2. Fi ms’ pe o mance -1 1.77 49.48 0.34* 1.00
3. Fo mal ins i u ional quali y 0.01 1.06 1.33 -0.02* -0.03* 1.00
4. Ins i u ional expe ience 0.00 1.00 1.37 0.05* 0.04* 0.30* 1.00
5. Fo eign i m 0.08 0.28 1.01 0.01 0.01 -0.04* -0.01 1.00
6. Fi m size 12.06 2.83 1.29 0.08* 0.06* 0.24* 0.39* 0.02* 1.00
7. Fi m age 3.06 1.02 1.10 0.04* 0.04* -0.01 0.23* 0.03* 0.19* 1.00
8. Fi m liquidi y 3.68 8.89 1.02 0.03* 0.02* 0.08* -0.03* 0.04* -0.03* -0.05* 1.00
9. Coun y size 27.12 1.31 1.33 -0.01 -0.01 0.39* 0.27* -0.04* -0.02* 0.03* 0.04* 1.00
10. Coun y g ow h 1.70 3.23 1.04 0.03* 0.00 -0.09* -0.12* 0.01 0.05* -0.03* -0.01* -0.18* 1.00
11. Coun y FDI 3.48 14.55 1.04 0.01 0.02* -0.01* -0.03* 0.03* 0.05* -0.02* -0.01 -0.17* 0.04*
The independen a iables o mal ins i u ional quali y and ins i u ional expe ience we e cen e ed (M =0 and SD = 1) in he u u e analyses.
*p < .05.
Oli ei a e al. 385
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