Impact of Institutional Arrangements on Business Survival: Evidence from GEM-data

Abstract

Despite decades of attention to the topic of business survival, entrepreneurship scholars still attempt to explain precisely why rates of business failure and survival differ across countries. The role of institutions also remains underdeveloped. This paper introduces a novel approach to entrepreneurial research in general and to firm failure in particular. The study aims to define the effect of institutional environment on business failure. Drawing from institutional theory, three institutional pillars model was chosen as a framework for conducting empirical research. The model was tested using Stata tools by applying linear regression statistics to data sample comprised of 59 countries and its subsets divided into three groups by the type of economy. The findings suggest that differences in institutional arrangements are associated with variance in the rate of business survival across countries. However testing of subsets showed that institutional environment plays the most significant role for the innovation-driven economies. The results of current research can be used both by firms and policy makers who are interested in business development and survival.