Institutional complementarity, firm behavior, and firm heterogeneity: A cross-national analysis

How do political economic institutions and different types of institutional complementarity in particular influence firm behavior? Existing studies do not offer much help in answering this question. In this research, we systematically connect institutional complementarity and its two distinct logics (the logic of reinforcement and the logic of compensation) to firm performance. Using a sample of more than fourteen thousand firms from twenty advanced industrial democracies, our empirical analysis finds that institutional complementarity is related to firm performance in a distinct way. That is, the different logics of institutional complementarity apply only to specific segments of the economy. While the logic of reinforcement works for small firms and labor-intensive firms, the logic of compensation favors large firms and capital-intensive firms. The empirical novelty of our research lies in offering a cross-national, firm-level and large-n analysis of institutional complementarity. Theoretically, our finding of firm heterogeneity helps in establishing the boundary conditions of institutional complementarity and hence advances the general understanding of the subject.