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Informal institutions and firm valuation

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  • Hartwell, Christopher A.
  • Malinowska, Anna P.

Abstract

Research on the effects of the institutional environment on firm market valuation have concentrated on formal institutions and in particular legal frameworks. However, changes in formal institutions may have little to no effect on the deeply ingrained socio-economic processes which determine the way of conducting business in a country. In such a situation, informal institutions may play a much more important role for firms. Using property rights as an example, this paper models the impact of formal and informal institutional changes on the market growth potential of Polish firms. Our examination indicates that Poland's formal and informal institutions diverge significantly, with changes in informal institutions shaping market worth much more than binding formal frameworks. We conclude that firm valuation in an unstable institutional environment is due mostly to developments in informal property rights and other factors external to the firm, with comparatively little effect of firm-specific attributes.

Suggested Citation

  • Hartwell, Christopher A. & Malinowska, Anna P., 2019. "Informal institutions and firm valuation," Emerging Markets Review, Elsevier, vol. 40(C), pages 1-1.
    • Handle: RePEc:eee:ememar:v:40:y:2019:i:c:9
    DOI: 10.1016/j.ememar.2019.03.001
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    More about this item

    Keywords

    Informal institutions; Firm valuation; Property rights; Emerging markets; Poland;
    All these keywords.

    JEL classification:

    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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