According to recent literature in new institutional economics and entrepreneurship, institutions, including formal and informal ones (i.e., the rules) are important. However, in a homogeneous national institutional environment, it is unclear whether and how the execution of institutions (how the rules are implemented) matters. The purpose of this research is to assess the mechanisms that local governments can use to encourage entrepreneurial investment, which determines the future growth potential of small businesses. We find that (i) improving local institutional quality in general boosts entrepreneurial investment; and (ii) more financially constrained firms are more sensitive to informal local governance, while less financially constrained firms are more sensitive to local formal institutions, using a large-scale small and medium-sized enterprise (SME) dataset from Vietnam from 2006 to 2019.
|Journal||International Journal of Finance and Economics|
|Early online date||27 Feb 2023|
|Publication status||E-pub ahead of print - 27 Feb 2023|
Bibliographical noteCopyright © 2023 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License [https://creativecommons.org/licenses/by/4.0/], which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Acknowledgements: This research is funded by Vietnam National Foundation for Science and Technology Development (NAFOSTED) under grant number 502.01-2020.01.
- financing constraints
- firm investment
- formal local governance
- informal local governance
- institutions execution