Institutions and Determinants of Firm Survival in European Emerging Markets

We analyze the impact of institutional quality on firm survival in 15 Central and Eastern European (CEE) countries. We employ the Cox proportional hazards model with a large dataset of firms from 2006–2015 and control for firm-specific determinants and country differences. Our results show that institutional quality (IQ) is a significant preventive factor for firm survival, and the result is robust to different measures of IQ and industry sectors. Furthermore, we document the existence of diminishing productivity of IQ, as the economic effect upon institutions is largest for low-level IQ countries and smallest for high-level IQ countries. In terms of firm-specific controls, ownership structure plays a vital role in strengthening the probability of firm survival. Notably, foreign ownership helps firms survive in all three country groups, and the effect is again larger for countries with low- and mid-level IQs. ROA, profit margin, solvency ratio, and firm age represent additional significant preventive factors, albeit with smaller economic effects.