Firms Facing New Institutions: Transactional Governance in Romania

Peter Murrell , Journal of Comparative Economics 31(4) , 695-714 , December 2003.

How do firms respond to new institutions? This question is addressed by analyzing the determinants of firms' strategies on transactional governance, using data from a Romanian survey. Strategy variables are regressed on factors that should determine behavior according to agency and transaction-cost theories. The results suggest that strategies do not reflect the long-run efficiency considerations emphasized by theory. Behavior reflects peculiarities of transition; history, ownership, and state relations are more important in determining responses to institutions. Firms use institutions but not as predicted by theories emphasizing efficiency, suggesting that institutional reform must reflect both transitional responses and predicted long-run behavior.

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