We propose that industry conditions, specifically industry concentration, moderate the relation among institutions and firm performance. We built a database of 230,222 observations of 10,903 companies in 64
countries in a 23 years interval. Regressions tested the interaction between the Herfindahl-Hirschman Index (HHI) and six institutional variables, considering three dependent variables: ROA, ROE and 3-year sales growth. Two empirical strategies were used: fixed effects and hierarchical (multilevel) models. Results were significant
for the negative interaction between HHI and four variables: voice and accountability, govern effectiveness, regulatory quality and control of corruption. We argue that expansion strategies within the industry, such as market share dominance, M&A and growth strategies, may fit better on weak institutional contexts.
Read the full article: