Small Bus Econ
DOI 10.1007/s11187-016-9736-7
Institutional drivers of high-growth firms: country-level
evidence from 26 transition economies
Besnik A. Krasniqi . Sameeksha Desai
Accepted: 14 April 2016
 Springer Science+Business Media New York 2016
Abstract High-growth firms (HCF) represent a
highly desirable subset of firms, which provide
disproportionate economic gains, and greater insight
into their determinants which is of interest to policy-
makers, scholars and business owners. We con-
tribute to the literature on HGFs, which is largely
absent of cross-national institutional studies, by exam-
ining the institutional conditions driving HGFs in 26
transition countries over a long period comprising
three panels between 1998 and 2009. Using an
institutional hierarchy approach, we test for the
influence of formal and informal institutions on HGF
prevalence in countries. Our analysis relies first on a
principal component analysis to identify institutional
factors. Second, we use GLS estimation to test the
influence of these three factors on HGF prevalence in a
country, followed by a robustness check. Our results
show that interaction effects, rather than direct effects,
are useful in explaining systematic variations in HGFs
prevalence in transition economies. We find that the
interaction between formal and informal institutions
positively influences HGFs. Further, we find that in
fast-reforming transition economies, more burden-
some formal institutions discourage HGFs but in slow-
B. A. Krasniqi (&)
University of Prishtina, Prishtina, Kosovo
e-mail: besnik.krasniqi@uni-pr.edu
S. Desai
Indiana University, Bloomington, IN, USA
reforming transition economies, informal institutions
encourage HGFs.
Keywords High-growth firms  Institutions 
Transition  Formal  Informal
JEL Classifications L26  O25  P2  P3
1 Introduction
An emerging policy trend is to target high-growth firms
(HGF), a special subset of firms, such as in recent OECD
(2011, 2013) and European Commission (2014) initia-
tives. HGFs have been linked to disproportionate
economic gains over other firms, such as job creation
and economic growth (Coad et al. 2014; Goedhuys and
Sleuwagen 2010; Henrekson and Johansson 2010; Acs
and Mueller 2008). For example, they are credited with
creating more than 40 % of new jobs by surviving firms
of more than 10 employees though accounting in volume
for\5 % of such firms in some countries (e.g. Italy, UK).
(Bravo-Boscia et al. 2013). HGFs may also induce
productivity-enhancing effects in the market (Autio
2009) and act as a role model for potential entrepreneurs
(Bosma et al. 2012). HGFs may lead to more innovation
(Coad 2009) and knowledge generation (Colombelli
et al. 2014), support firm internationalization (Mason and
Brown 2010) export orientation (Parsley and Halabisky
2008), and can boost industry growth (Du and Temouri
2015; Amaral and Iglesias 2015).
123

Policymakers may thus be well-served by focusing
on HGFs (Mason and Brown 2013), as opposed to
startups more broadly (Shane 2009). An obvious
question, then, is about the drivers of HGFs? Current
knowledge is limited (Nightingale and Coad 2014;
Henrekson and Johansson 2010), despite rapidly
growing policy and scholarly interest (Teruel and De
Wit 2011). A handful of studies (Coad et al. 2014;
Goedhuys and Sleuwagen 2010; Hölzl 2009; Autio
2007; Chan et al. 2006; Delmar et al. 2003; Birch et al.
1997; Storey 1994) shed initial light on the topic.
However, more research is necessary (Henrekson and
Johansson 2010) and especially with respect to cross-
national differences in HGFs (Coad et al. 2014; Teruel
and De Wit 2011).
Understanding why HGFs are more prevalent in
some countries, but less in others, is an important
question for scholars with significant implications for
policymakers. Answering this question in the transi-
tion economy context is especially salient, because
HGF activity has been found especially meaningful
for growth in transition economies (see Stam and van
Stel 2011). Countries undergoing a process of con-
vergence may host more HGFs (see Teruel and De Wit
2011). There is also an overall need for research on
entrepreneurial phenomena in transition economies
(Bruton et al. 2008; McMillan and Woodruff 2002;
Smallbone and Welter 2001).
Research on entrepreneurship across countries
(Stenholm et al. 2014; Tonoyan et al. 2010; Acs
et al. 2008a) and specifically in transition economies
(Krasniqi and Mustafa 2016; Estrin and Mickiewicz
2010; Aidis et al. 2008) points to a strong influence of
the national institutional context. Recent research on
HGFs points to the importance of institutional condi-
tions in shaping their emergence (see Teruel and De
Wit 2011; Schreyer 2000). However, the extant
research on HGFs has largely not addressed coun-
try level phenomena, focusing instead on other
dynamics at the individual-level (see Levie and Autio
2011) and firm-level (see Delmar et al. 2003).
Our study is motivated by this gap in the scholarly
literature and the need for better policy guidance: We
investigate the institutional conditions shaping cross-
national differences in the prevalence of high-growth
firms in transition economies. Drawing upon institu-
tional theory, we hypothesize on the direct influence of
formal and informal institutions, as well as their
interaction influence, on the prevalence of HGFs
123
B. A. Krasniqi, S. Desai
across transition economies. We use a long panel over
three time periods (1998–2002; 2002–2005;
2005–2008/9) across 26 transition economies, and
conduct a novel two-step methodology. First, we use
data reduction technique to identify institutional
factors, and second, we employ Generalized Least
Square (GLS) estimation to test the influence of the
identified factors on HGFs in a country.
Our study makes three contributions to the litera-
ture. First, we contribute country-level empirical
findings to the body of research on HGFs. We use a
unique approach estimating the prevalence of HGFs at
the country level, as opposed to most previous
research focused on the individual- or firm-level (see
Levie and Autio 2011). To our knowledge, ours is the
second cross-national empirical study of HGF firms at
the country level (Teruel and De Wit 2011). Second,
we focus on national institutional conditions in
transition economies. In doing so, we address the
need for research on institutional heterogeneity (Sten-
holm et al. 2014) shaping firm outcomes, and the need
for research specifically on the unique institutional
conditions in transition economies (Smallbone and
Welter 2001). ‘‘Refocusing’’ on unique environments
(Bruton et al. 2008) like transition contexts enriches
established findings in the literature. Third, we con-
sider heterogeneity of national framework institutions
in driving HGFs and identify specific types which can
be targeted by policymakers. We consider distinctions
between the effect of informal and formal institutions,
and we also shed light on the very important question
of how formal and informal institutions may interact
together (Smallbone and Welter 2012; Tonoyan et al.
2010). Our approach relates to the need for multi-level
study (Busenitz et al. 2003; Phan 2004; Schendel and
Hitt 2007) and in particular ‘‘context-dependent’’
entrepreneurial behaviors (Autio and Acs 2010).
Our paper proceeds as follows. Our theoretical
foundation is next, followed by our method and data in
the Sect. 3. We discuss results in the Sect. 4 and
implications in the Sect. 5. We end with a brief
conclusion.
2 Theoretical foundation
A burgeoning literature is growing on the determi-
nants, context and environment of HGFs (Moreno and
Coad 2015; Lee 2014; Coad and Rao 2008; Henrekson
Institutional drivers of high-growth firms
and Johansson 2010; Autio 2007; Cassar 2006; Chan
et al. 2006; Birch et al. 1997; Storey 1994), motivated
by a previous body of work which documented their
positive economic effects (Acs and Mueller 2008; Acs
et al. 2008b; Deschryvere 2008; Birch et al. 1997).1
These studies have examined entrepreneur or individ-
ual-level characteristics (Cassar 2006; Levie and
Autio 2011), firm-level factors like resources, R&D
activity and strategy (Lee 2014; Mohr et al. 2014;
Parker et al. 2010; Stam and Wennberg 2010; Hölzl
2009; Delmar and Shane 2006; Lechner and Dowling
2003; Kolvereid 1992) and industry characteristics
(Daunfeldt et al. 2015; Bos and Stam 2014; Kolvereid
1992). Research which expands beyond the industry
has focused largely on HGF activity in one country
(see Bornhäll et al. 2015; Siepel et al. 2015; Bos and
Stam 2014; Garcia and Puente 2012; Hölzl 2011;
Falkenhall and Junkka 2009; Moreno and Casillas
2007; Littunen and Tohmo 2003), one region (Desai
and Motoyama 2015; Mason and Brown 2010) or one
or a few sectors (Siepel et al. 2015; Coad and Rao
2008; Littunen and Tohmo 2003). Some comparative
empirical research has shown that region-specific
characteristics, like industrial diversity, agglomera-
tion economies and employment (Bogas and Barbosa
2013; Audretsch and Dohse 2007), play an important
role in explaining the variance in HGF activity across
regions. This indicates that variation at the regional or
supraregional levels of analysis is an important
question.
1
The question of HGFs is distinct from two parallel but
relevant streams of research. One stream is an established
literature on antecedents and drivers of firm growth, broadly
speaking (Peev 2015; Baum and Locke 2004; Baum et al. 2001)
and not specifically on rapidly growing firms. HGFs are special
because they generate disproportionate economic gains (Mor-
eno and Coad 2015). The second stream is on growth aspirations
of entrepreneurs (Estrin et al. 2013; Tominc and Rebernik 2007)
or managers (Wiklund et al. 2003). This nascent stream in the
entrepreneurship literature has recently examined the drivers of
cross-national differences in entrepreneurial growth aspirations,
e.g., institutional drivers like intellectual property rights (Autio
and Acs 2010), corruption and property rights (Estrin et al.
2013), or cultural and personal factors (Tominc and Rebernik
2007). This question asks what shapes intentions to grow, but it
does not apply to real growth (Autio and Acs 2010). As noted by
Wiklund and Shepherd (2003), aspiring to grow does reflect
actual growth. Growth aspirations are a ‘‘best guess’’ and likely
optimistic (Autio and Acs 2010). In other words, just because a
firm wants to grow does not mean it will grow. Studying HGFs
has the advantage that these firms have already proven they can
achieve growth.
The cross-national perspective in understanding
HGFs has been surprisingly limited (Coad et al. 2014).
Two recent cross-national studies have examined the
drivers of HGFs, focusing on firm (Hölzl 2009) or firm
and entrepreneur characteristics (Goedhuys and
Sleuwagen 2010). Hölzl (2009) examined the R&D
behavior of HGFs across 16 CIS countries and found
significant differences exist not only in the volume and
ways in which these firms invest in innovation, but
also the internal firm dynamics shaping this behavior.
Goedhuys and Sleuwagen (2010) studied firms in ten
manufacturing sectors across 11 African countries and
conclude that internalized transportation infrastruc-
ture and ICT connectedness are the most important
drivers of entrepreneurial HGFs. These studies have
established important early evidence on the individual
and firm drivers of HGFs, identifying many promising
next steps.
To our knowledge, however, the important ques-
tion of the institutional context surrounding HGFs
(Falkenhall and Junkka 2009) at the country-level has
been the central focus of one study by Teruel and De
Wit (2011). Teruel and De Wit (2011) consider two
institutional constraints in their research on the
influence of entrepreneurship, institutions and growth
opportunities on HGFs across countries: Labor
market protections and administrative entry burden.
They find more extensive labor market protections
negatively influence HGFs and argue this could be
because more employment protections make it more
attractive for individuals to become employees, as
opposed to becoming entrepreneurs and starting firms
which may eventually grow. They also find a
negative influence of administrative entry procedures
on HGF prevalence. Logically, fewer new firms
resulting from more entry regulation (see Klapper
et al. 2006) means a smaller pool of firms which
could eventually grow. Teruel and De Wit (2011)
show that some institutional dimensions are impor-
tant. Given the multi-dimensional nature of the
institutional environment (Audretsch et al. 2015),
further research is needed. This includes identifying
key institutions which matter and their influence on
HGFs.
Institutions, broadly speaking, refer to constraints
designed by people to structure interactions (North
1990, p. 3). These constraints can shape incentives for
market actors, such as by shaping predicted rewards
and risk. In this way, institutions can drive different
123

allocations of entrepreneurial activities (Baumol
1990). Central to our theoretical framework is the
argument that institutional quality can influence the
incentives for value-adding behavior (North 1990) and
therefore can shed light on its outcomes. We view
HGFs as one of several outcomes; HGFs are one of
several possible allocations of activities which could
result from entrepreneurial effort (Baumol 1990). We
consider an institutions-focused approach appropriate
for our study, given that we are interested in country
conditions driving HGF prevalence. We seek to
understand the distinctive features of the institutional
environment in transition economies (see Welter and
Smallbone 2011; Smallbone and Welter 2001). Insti-
tutional factors in transition economies can have
strong and significant influences on firm behavior and
strategic choices (Peng 2003; Peng and Heath 1996),
including pursuing growth.
Our approach is to distinguish between formal and
informal institutions, as well as the interplay between
them. We do this because they could affect firms
through different channels. Formal institutions repre-
sent codified frameworks and rules. These can include
constitutional foundations and lower-level contractual
arrangements, including regulatory frameworks for
business activities (e.g., contract enforcement prac-
tices, licensing requirements, entry regulation, export
and import regulations, occupational health require-
ments). Informal institutions represent what North
(1990) considered to be unmodified attitudes and
social beliefs which regulate individual behavior.
These can include customs, traditions, social norms,
religious ideals and can be categorized as slow to
change and ‘‘sticky’’ (Williamson 2000). In a transi-
tion country, these are likely to include corruption
(Estrin et al. 2013), which can become common
practice and deeply entrenched (Belitski et al. 2016).
Informal business practices also reflect informal
institutions.
2.1 Formal institutions
Formal institutions are formally written and accepted
rules such as those codified within the legal environ-
ment and rule of law, property rights, free trade laws,
tax policy, availability of external finance, procedures
for start-up and business licensing and permits and
other regulatory dimensions which are necessary for
the functioning of the market economy system (see
123
B. A. Krasniqi, S. Desai
North 1990). These can both constrain and enable firm
growth.
Heavily regulated economies have lower rates of
market entry (Aidis et al. 2012; Verheul et al. 2006)
and also discourage entrepreneurs from wanting to
grow (Estrin et al. 2013). For example, more complex
tax procedures could mean firms have to employ
outside advisors to comply with tax regulations, thus
raising their costs. More time spent dealing with
public officials poses more barriers to entry and
growth (see Djankov et al. 2002). The move toward a
market system and more economic openness in
transition economies required major or complete
overhaul of the formal institutional system, in areas
as diverse as property rights and land titling systems
(from public ownership of land to private ownership),
to investor protections (from large state-owned enter-
prises to private ownership and private investors), to
hiring systems (from large-scale public employment
lacking performance-based rewards to a market sys-
tem which rewards talent). The ways in which
transition countries undertook reform have important
implications for competitiveness and industry
(McMillan and Woodruff 2002).
In transition economies, the rewards to firms can
be clearly communicated through formal institutions,
if they in fact work and are effectively enforced. For
example, legal frameworks determine the contractual
agreements available to firms, which can facilitate or
protect activities necessary for their growth. In a
transition economy, in particular, the later stages of
firm growth may mean greater reliance on legal
frameworks to implement contracts and manage
relationships, as opposed to relying on relational or
informal ties (Peng 2003). The relevance of formal
institutions for high-growth firms may be even
greater than for new startups. Firms with growth
ambitions need to ensure they can protect their
products, as well as investments made in order to
create them, e.g., intellectual property, to harvest a
productive investment. Countries which deliberately
installed property and legal rights protections and
implemented them over time have experienced the
slow growth of technology and high-growth indus-
tries at first, but now serve as sizable hubs for such
activities.
A weak formal institutional environment can be
marked by excessive regulatory burden related to
business, such as requiring many procedures to conduct
Institutional drivers of high-growth firms
business, as well as inconsistent or discretionary
implementation of these rules, all of which significantly
raise costs (see Autio and Fu 2015). Firms can interpret
these conditions as a high level of uncertainty for their
transactions. Further, it is not only the state or the
enforcement of these formal institutions, but also their
reliability or volatility. Frequent changes in laws,
regulations and even procedural rules can create uncer-
tainty and raise costs of acquiring accurate information
and ensuring compliance. These can increase overall
costs, thereby redirecting resources which could be
invested in growth activities. Volatility in the formal
institutional environment can be hostile to firm growth
and make it difficult to feel secure entering into contracts
based on anticipating future profits (see Carlin et al.
2001). This is especially salient in transition economies,
where institutional change can be faster and less
predictable (Ahlstrom and Bruton 2010) than in mature
market economies. This could encourage firms to ‘‘play
it safe’’ and take fewer risks.
2.2 Informal institutions
Informal institutions are deeply rooted values and
norms which can drive individual behavior. Transition
economies have, at varying speeds, moved from
centrally planned economies to market-driven econo-
mies. The realization of change in social practice
(Clark and Soulsby 2005) is slow and informal
institutions can be path-dependent, which means they
change slowly. In order to change, informal institu-
tions face inertia (Clark and Soulsby 2005; North
1990) and some transition economies are particularly
slow to change given former communist legacy. For
example, social trust in government is not likely to
become immediately in economically and socially
traumatized households recovering from decades of
communist rule. In some countries such as Lithuania,
entering into private business or entrepreneurship
itself was an illegal occupation before transition; and
although many people worked illegally in this way
(Aidis and Van Praag 2007), the concern of citizens
does not change overnight. Willingness of citizens to
trust a new political philosophy and its economic
implications can take a long time, even up to a
100 years (Williamson 2000).
Informal institutions in transition economies are
likely to be very powerful in shaping behaviors. This
could be because of non-efficient and inadequate
formal institutions left from communist rule, as well as
inadequate or problematic institutional reform in the
transition period. A weak or ineffective formal
institutional environment can put more pressure on
informal institutions to regulate behavior (see Belitski
et al. 2016; North 1990). This could include corrup-
tion, reliance on political connections to obtain favors
for public tenders, conducting business informally due
to state rent-seeking, as well as unchecked anticom-
petitive behavior by other firms. Entrepreneurs may
avoid registering businesses because of complex or
excessive regulations (Johnson et al. 2000) which take
too much time or are too expensive, or because they
are concerned that attracting attention of the govern-
ment will result in requests for bribes and facilitation
payments.
Corruption is a classic informal institution (Estrin
et al. 2013) in a transition economy. It can directly and
quickly harm firm growth by redirecting resources
which could otherwise be used for growth activities
and strategic investments. For example, money redi-
rected to pay customs officials to facilitate exports
could have been used for business development,
capital investment for more efficient production, or
for worker hiring and training.
In addition, corruption has many other effects
which can become embedded. It can contribute to an
anticompetitive environment in which the market
fails to allocate resources efficiently, since some
actors can operate outside the law but some will
operate inside the law (see Belitski et al 2016; Dutta
and Sobel 2016). There are advantages and disad-
vantages to both in a transition economy. Those
operating outside the law face lower transaction costs
but are open to repeated abuses by government agents
and have no recourse or protection by policy or
courts. Those operating within the legal system face
higher costs of doing business legally, and higher
transaction costs (Krasniqi 2007) and are more easily
available to government agents for exploitation, but
can access formal institutional protections. Whether
or not corruption greases or sands the wheels of
business (Méon and Sekkat 2005) could depend on
the political connections of a firm or even its size.
Evidence from transition economies suggests that
some firms learn to operate in a corrupt environment
and use informal ties to achieve growth (Xheneti and
123

Bartlett 2012). On the other hand, uncertainty and
turbulence associated with corruption punishes firms
and encourages short-term payoffs among entrepre-
neurs, informal networks and more opportunism (see
Manolova and Yan 2002) as opposed to long-term
entrepreneurs with strategic orientation (Meyer et al.
2009). These entrepreneurs are starting firms, some of
which will become HGFs. Corruption by its nature
is a ‘‘control crime’’ so both the bribe-taker and
the bribe-payer have incentives not to report it
(UNODC 2010). In this manner, it can become
deeply entrenched not only as a coping mechanism
for firms to get things done, but also as a self-
protective behavior to cover up previous corruption.
Embedded corruption can shift incentives for inves-
tors as well, encouraging them to seek short-term
payoffs determined by shorter time horizons, because
they may less willing to wait (Desai et al. 2013).
Informal institutions are therefore likely to be posi-
tively associated with HGFs in transition economies.
2.3 Interplay between formal and informal
institutions
The interplay between formal and informal institu-
tions in a country remains a sort of black box (Tonoyan
et al. 2010). An economy’s reward system can have
different impacts on the supply of different types of
firms and their choices (Estrin et al. 2013; Sobel 2008;
Baumol 1990). In some countries, where formal
institutions are streamlined, straightforward, and
well-enforced, the official rules might tell all or most
of the ‘‘story’’ about how firms and their owners invest
and direct their efforts. However, in countries where
the formal rules do not necessarily reflect what is
actually happening—in other words, where the de jure
systems do not reflect the de facto practices—informal
institutions become critical considerations (North
1995) when trying to understand market outcomes.
The government in a country directly controls its
formal institutions, which can also indirectly influence
informal institutions (see Smallbone and Welter
2001), especially if there is little or no change over
time in formal rules. This includes long periods of
communist rule and minimal or no move toward
openness in some former communist countries.
This also includes selective or improper enforce-
ment of formal institutions as de facto practice. For
example, if customs duties are properly and
123
B. A. Krasniqi, S. Desai
predictably enforced all the time, then a firm can get
its containers out of customs by paying the official
costs and completing the requisite paperwork. This
allows the firm to predict profits based on relatively
nonchanging information about export costs. How-
ever, if customs duties are unpredictably enforced and
depend largely on the discretion of the customs official
onsite, then a firm may be able to get its containers out
on a given day, but may not be able to do so on the
following day. It may be that customs officials ask for
bribes sometimes, but not all the time. Or, it may be
that bribes are an expected part of doing business, for
example, if regulatory requirements are contradictory
or not well-sequenced. All of these problems can
significantly reduce predictability when it comes to
costs, and therefore predicting future profits. How-
ever, these problems would not easily be reflected in
the formal institutions.
In the transition context, a solution for firms could
be to forge relationships with public officials and to
entrench the firm in business networks or lobbying.
Bribes can facilitate transactions, as well as build
personal relationships with officials. In the context of
turbulent changes and frequent regulatory change
(Peng and Luo 2000; Peng 2003) which can occur in
transition, ties with government officials can help
firms gain access to information, facilitate transactions
and gain advantages to improve firm performance
(Gui et al. 2014). These relationships can entrench
corruption, which may be more present under condi-
tions of poor government effectiveness and weak
formal institutions (see Fries et al. 2007). In this
manner, corruption could facilitate firm transactions.
Therefore, corruption can become an informal but
persistent behavior providing advantages to existing,
growing firms at the cost of newcomers (Aidis et al.
2012) and thus induce redistributive or unproductive
rather than wealth-creating effects (Baumol 1990).
However, under conditions of strong government
effectiveness and well-designed formal institutions,
the need for corruption is lower because the systems
are predictable. In this way, corruption could hurt firm
transactions (Meon and Weill 2008; Méon and Sekkat
2005).
When it comes to the interplay of the formal and
informal levels in the institutional hierarchy, we
consider their interaction could positively influence
HGF prevalence across countries. Given that reform
conditions can vary across countries, such as those
Institutional drivers of high-growth firms
which reform quickly or slowly, we also should
consider that informal institutions could influence
HGFs differently in fast-reforming versus slow-re-
forming transition economies.
3 Data and method
Our method in this paper is a two-step empirical
approach. First, we use data reduction technique to
identify common factors among individual conditions
reflecting external environment of firms. Second, we
use GLS estimation to test the effect of institutions on
HGFs.
3.1 Data
We combine data from multiple sources: The Business
Environment and Enterprise Performance Survey
(BEEPS) dataset from the World Bank/European
Bank for Reconstruction and Development (EBRD),
World Bank Data, and EBRD Transition Report.
BEEPS is a large dataset on transition economies,
which collects information on firm and business
environment characteristics. It is compiled from
micro-level firm surveys in 26 transition economies
for the years 2002, 2005 and 2009. BEEPS is the only
detailed cross-national dataset on firms and business
environment in transition economies. Surveys are
answered by firm owners or key managers and cover
the following, among others: Tax and contributions,
tax administration and rate, transportation, electricity,
access to land, corruption, policy environment and
competition. Respondents rate the extent to which
each topic is an obstacle, using a Likert scale ranging
from 1 to 4 (1 indicates not an obstacle, and 4 indicates
major/severe obstacle). The Transition Report pro-
vides data related to transition and institutional reform
in countries.
We create a unique country-level panel dataset
using firm-level BEEPS data, averaged to create
country-level measures. The World Bank data and
Transition Report data are available at the country
level. After combining the data, we create a distinctive
set of comparative data on the prevalence of HGFs,
institutional conditions, innovation, finance and aver-
age firm size. This allows us to use panel data
estimation models. These datasets, based on strictly
harmonized data collection methods across countries,
ensure high-quality data for empirical study (Mason
and Brown 2013; Reynolds et al. 2005). Other HGF
datasets are not able to capture the country level, and
many do not cover transition economies (see LiPuma
et al. 2013; Hashi and Krasniqi 2011; Beck et al. 2008;
Raiser et al. 2008).
Our final sample comprises 78 observations. We
consider a slightly reduced sample size a worthwhile
tradeoff to be able to capture a wider range of
conditions (Thai and Turkina 2013). A small sample
could have consequences for the level of significance
of empirical results (Teruel and De Wit 2011). To
check whether this could be problematic in our study,
we run various regressions with smaller and larger
numbers of independent variables to test whether
statistical significance of the variables changed. This
yields consistent results.2 We thus consider our sample
within an acceptable range of sample size limitations,
and larger than similar comparative empirical studies
using smaller samples (e.g., Sobel 2008; Verheul et al.
2006; Méon and Sekkat 2005). Countries included in
this study are listed in Table 1.
3.2 Variables
3.2.1 Dependent variable
Our dependent variable is high-growth firms, mea-
sured as the percentage share of fast-growing firms in a
country. As with Goedhuys and Sleuwagen (2010), we
define3 HGFs as: The threshold level of the growth
rate over the 3-year period set to a minimum average
of more than 10 % per annualized employment growth
over the period 2002, 2005, and 2009 and more than
five employees at the period start. The beginning
period refers to 36 months prior to survey.
We create our country-level HGF measure for 26
transition countries by aggregating firm-level data
2
The exception is the control variable logarithm GDP growth,
for economic growth. This variable should be interpreted with
caution. All other variables did not change statistical signifi-
cance and sign.
3
Finding a way to measure ‘‘growth’’ is conceptually chal-
lenging (Penrose 1959). There is no standard definition or
measurement of ‘‘high-growth’’ firms (Delmar et al. 2003),
contributing to a lack of research on the subject (Henrekson and
Johansson 2010). Measures of firm growth have focused on an
increase in volume of a certain firm dynamic, typically sales or
employment.
123
 B. A. Krasniqi, S. Desai

Table 1 Countries included in the study business operations, making employment growth a
Albania Lithuania
more reliable indicator (than e.g. sales, revenues,
Armenia Latvia
profits); employment growth is also easier to remem-
Azerbaijan Moldova
ber by survey respondents and is not contaminated by
changes in prices or inflation (Krasniqi 2012; Brown
Bulgaria Macedonia
et al. 2005). However, using employment size without
Bosnia and Herzegovina Poland
considering how many years the firm operated
Belarus Romania
(Goedhuys and Sleuwagen 2010) is problematic. In
Czech Republic Russia
order to avoid the bias created by using employment
Estonia Serbia
size, the OECD categorizes high-growth firms as ‘‘all
Georgia Slovak
enterprises with an average annualized growth rate
Croatia Slovenia
greater than 20 % per annum, over a 3 year period…
Hungary Tajikistan
Growth can be measured by the number of employees
Kazakhstan Ukraine
or by turnover’’ (Eurostat-OECD 2007: 61), and ten
Kyrgyz Republic Uzbekistan
employees is proposed as a size threshold. Employ-
ment growth is used frequently (Davidsson and
taken from BEEPS. We construct this measure as Wiklund 2006) and tends to be highly correlated with
follows. First, we remove from the sample state-owned other indicators which can also reflect growth, e.g.
firms or firms in which government has the majority of sales (Rauch and Rijsdijk 2013).
shares. We do this because we are concerned with the
effect of institutional quality on performance of private
firms and including state-owned firms would distort 3.2.2 Explanatory variables
our results. Next, we pool the firm-level data and
impose our definitional criteria to pull the appropriate Our data reduction technique (discussed in detail in
sample for HGFs. HGFs for the 26 transition countries Sect. 3.3) yields two factors which become our
in our sample are shown in Fig. 1. The share of HGFs explanatory variables. The formal institutions factor
ranges from 5 % in Uzbekistan to 20 % in Albania. comprises four dimensions (tax administration, trade
A benefit of using a measure based on employment and custom regulations, tax rate, business licensing/
growth is avoiding the problem of firms underreport- permits), and the informal institutions factor comprises
ing or inaccurately reporting on other performance four dimensions (functioning of the judiciary/courts,
indicators. This is especially helpful in the transition anti-competitive practices of competitors, policy
context, where firms commonly underreport on uncertainty, corruption).

Fig. 1 Share of high- 25.00

growth firms in 26 transition
economies. Source: Author
20.00
calculations using Business
Environment Enterprise
Surveys, 2002, 2005 and 15.00
2009
10.00

5.00

123
Institutional drivers of high-growth firms
3.2.3 Control variables
Data reduction technique also yields a third factor,
which we include as a control variable: the inputs
factor comprises three dimensions (transportation/
telecommunication, electricity, access to land) and
captures quality of infrastructure and access to
resources related to inputs for production.
We control for availability of finance (Klapper et al.
2006), measured as the percentage of firm investment
financed by local commercial banks. This is calculated
at the country-level by averaging firm-level data from
BEEPS. Previous research identifies poor external
finance as a key constraint for entrepreneurs (Demir-
güc-Kunt et al. 2011) and especially in the early stages
of transition (Cassono et al. 2013). This is especially
important in the HGF context because firms seeking
expansion need capital in order to do so.
We control for average private sector size using the
average number of employees in a country, 36 months
prior to survey time. This is calculated using employ-
ment growth change, taken from BEEPS. Henrekson
and Johansson (2008) found that current knowledge
converges on HGFs being smaller in size, on average,
than other kinds of firms. Countries with average
smaller firm size have been found to experience higher
growth (Hashi and Krasniqi 2011). However, small
firms may be affected more by poor institutions than
large firms (Beck et al. 2005) and may also be more
vulnerable to policy changes (see Storey 1994). They
also could have greater preference for well-function-
ing institutions than large firms, as they are less able to
trade favors (Do and Levchenko 2009) to gain
leverage to deal with unfavorable institutional condi-
tions, like excessive entry regulation.
We also control for innovativeness, averaged at the
country level and drawn from BEEPS, as percentage
of firms introducing new products over the last
36 months. HGFs firms tend to innovate more than
others (Coad 2009) and previous research supports a
positive effect of product innovation on employment
(Harrison et al. 2008), and positive effect of innova-
tion on firm growth (Parker et al. 2010; Stam and
Wennberg 2010) in transition (Hashi and Krasniqi
2011) and developing economies (Goedhuys and
Veugelers 2012).
To account for government activity (Aidis et al.
2012), we use size of government proxied as govern-
ment expenditures as percentage of GDP, taken from
the World Bank Indicators. A larger bureaucratic
apparatus could increase public oversight in a good
way, but it could also give greater power to government
agents and thus facilitate corruption (Belitski et al.
2016; Fogel 2006).
We control for economic growth using GDP
growth, lagged 3 years. We do this because economic
development is significant for firm growth (Teruel and
De Wit 2011), and because it plays an important role in
entrepreneurial activity overall. We expect economic
growth is more immediately relevant than economic
development for HGFs because economic expansion
means greater aggregate demand and more incentives
for firm expansion and growth. Our measure for
economic growth is taken from the World Bank
database.
Finally, we control for the stage of reform,
FastReformer, to distinguish countries in advanced
stages of transition. This is a time-invariant dummy
variable based on the Transition Report index
(EBRD), scoring countries on reform levels ranging
from 1 to 4?. A low score represents no or little
change from a planned/centralized economy, and a
high score represents advanced reforms with condi-
tions similar to established market economies.
Table 2 contains variable definitions. Table 3
shows correlations and summary statistics.
3.3 Data reduction technique
Institutional environment factors can be highly corre-
lated with each other, so assuming linear indepen-
dence of single institutional variables is unadvisable.
Thus, the first step of our method uses principal
component analysis (PCA) to identify factors com-
prising single variables which cluster together. After
checking for consistency of questions in the three
periods, we select 11 single variables from the BEEPS
dataset relevant for firm operations and growth (Aidis
et al. 2012), which reflect conditions in the external
environment. We conduct exploratory factor analysis
using Varimax-rotation with Kaiser normalization.
The rotated matrix generates a 3-factor solution with
acceptable level results (Kaiser–Meyer–Olkin mea-
sure of sampling adequacy = 0.782, p \ 0.000).
PCA identifies three factors which represent formal
institutions, informal institutions, and inputs. Table 4
contains factors and their loadings. The first factor,
formal, has four items: tax administration, trade and
123
 B. A. Krasniqi, S. Desai

Table 2 Definition of variables and sources of data

Variable Definition Source

High-growth firm (HGF) Percentage of high growing firms in a country Business Environment and
prevalence in a country Initial size [10 employees Enterprise Survey (BEEPS)
data
Growth [10 % annualized growth of employment over 3 years
Innovativeness Percentage of firms that declared that they have introduced new Business Environment and
product line, aggregated at country level Enterprise Survey (BEEPS)
data
Economic growth GDP per capita growth lagged 3 years World Bank Indicators
Size of government General government final consumption expenditure (% of GDP) World Bank Indicators
Private sector size The average number of employees in firms in country (36 months Business Environment and
prior to the survey) Enterprise Survey (BEEPS)
data
Finance Percentage of firm investment financed by local commercial banks Business Environment and
(country average) Enterprise Survey (BEEPS)
data
Inputs Factor 1 from principal component analysis. Business Environment and
Includes three dimensions: electricity, transportation, and access to Enterprise Survey (BEEPS)
land (average responses per country 1-not a barrier and 4-very high data
barrier)
Formal institutions Factor 2 from principal component analysis-formal institutions. Business Environment and
Includes four dimensions: tax administration, tax rate, trade and Enterprise Survey (BEEPS)
custom regulation, business licensing and permits (average data
responses per country 1-not a barrier and 4-very high barrier)
Informal institutions Factor 3 from principal component analysis-formal institutions Business Environment and
Includes four dimensions: Functioning of the judiciary/courts, Enterprise Survey (BEEPS)
uncertainty about regulatory policies corruption, anti-competitive data
practices of other competitors (average responses per country 1-not
a barrier and 4-very high barrier)
Fast Reformer Fast-reforming country based on EBRD transition indicators. This is Transition Reports, World Bank
time-invariant variable (coded 1 for Czech Republic, Estonia, and EBRD
Hungary, Lithuania, Latvia, Poland, Slovakia Slovenia)

custom regulations, tax rate and business licensing/
permits. Tax administration, followed by trade and
customs regulations, had the highest loadings for the
formal institutions factor. The second factor, informal,
has four items: Functioning of judiciary and courts,
anticompetitive behavior of competitors, policy uncer-
tainty and corruption. The highest loading was for
functioning of judiciary and courts, the cornerstone of
legal and property systems. ‘‘Functioning’’ of courts
differs from the written de jure laws and rules and
represents how things are actually done in practice. In
transition economies, there can be a large gap between
these de jure and de facto realities. The third factor,
inputs, has three items: Transportation/telecommuni-
cation, electricity and access to land. Transportation/
telecommunication has the highest loading for the
inputs factor.
We take formal and informal as our explanatory
variables given our theoretical approach, and we use
inputs as a control variable. The data reduction
technique clearly demonstrates the need to distinguish
formal and informal institutions, as well as the
importance of considering both formal and informal
institutions as heterogeneous, both conceptually and
empirically.
3.4 Estimation
We now turn to the second step of our empirical
strategy. After identifying three institutional factors in

123
Institutional drivers of high-growth firms

Table 3 Summary statistics and correlation matrix

Variables Mean Std. 1 2 3 4 5 6 7 8 9 10
dev.

1 HGF 13.45 4.98 1.000

2 Inputs 0.00 1.00 0.402 1.000
3 Formal inst 0.00 1.00 -0.060 0.000 1.000
4 Informal inst 0.00 1.00 0.263 0.000 0.000 1.000
5 Finance 11.21 7.52 0.583 0.316 -0.370 0.361 1.000
6 Size of govt. 17.02 4.80 -0.231 -0.335 -0.276 0.230 0.074 1.000
7 Innovativeness 42.70 12.97 0.515 0.460 -0.040 0.292 0.454 0.007 1.000
8 Firm size 4.67 0.57 -0.341 -0.179 0.063 0.099 -0.204 0.256 -0.026 1.000
9 Econ growth 5.42 5.12 0.322 0.447 -0.151 -0.235 0.292 -0.285 0.165 -0.260 1.000
10 Fast reformer 0.27 0.45 -0.150 -0.171 -0.175 0.093 0.150 0.387 -0.034 0.247 -0.072 1

Table 4 Factors identified Factors Component

using data reduction
technique Factor 1 Factor 2 Factor 3

Formal institutions
Tax administration .906
Trade and custom regulations .810
Tax rate .727
Business licensing and permits .650
Informal institutions
Functioning of judiciary and courts .787
Anticompetitive behavior of competitors .770
Policy/political uncertainty .722
Corruption .562
Inputs
Kaiser–Meyer–Olkin Transportation/telecommunication .879
measure of sampling Electricity .866
adequacy 0.782, Bartlett’s Access to land .835
Test p \ 0.000. Cumulative
explained variance: Percentage of variance explained 18.453 9.753 47.360
75.60 %

the first step, we use random effect GLS for our
estimation, using the following model:
Yit ¼ a þ b1 X1it þ uit ði ¼ 1;...:;N; t ¼ 1;...;T Þ:
where the dependent variable Yit is a vector of
dimension NxT that contains observations of individ-
ual (i) in one period (t) (in our case, 36 months) and Xit
is the vector of independent variables. We assume that
the independent variables are independent of distur-
bances, and observations have been extracted from the
same population, uit  i:i:d:ð0; r2 Þ. In this study, the
subscript i refers to (26) countries and t to years 2002,
2005 and 2009.
GLS random estimates are conditional with respect
ð1Þ
to unobserved heterogeneity. Hausman test consis-
tently suggested random effects panel model provided
better fit of data across the majority of specifications.
However, in a few fixed-effect specifications (not
shown here), economic growth accounted for most of
the variation in the sample; for this reason, we use
population-averaged generalized-estimating equation
(GEE) as robustness check.

123

As shown in Table 3, our independent variables are
correlated below 0.5, indicating that multicollinearity is
not a concern. Variance inflation factor (VIF) confirms
this, with values below 1.92. Following Wooldridge
(2013, pp. 511), we apply cluster robust inference to
account for serial correlation within panel data context.
This is appropriate and easily justified when N is
substantially larger than T, but not vice versa. In our
case, we have comparatively larger N (26) than T (3).
3.5 Robustness check
We use population-averaged generalized-estimating
equation (GEE) as robustness check. We use a GEE
exchangeable working structure to model the correla-
tion of observations from the same country, which is
essentially the equivalent to the random effects model
(Katila and Ahuja 2002; Zeger and Liang 1986).4
Following Liang and Zeger (1986) and STATA (2013:
131), the model takes the form:5
gfEðyit Þg ¼ Xit b; y  F with parameters hit ð2Þ
for i = 1,…, m and t = 1,…, ni, where there are ni
observations for each group identifier i. g() is called
the link function, and is the distributional family (in
our case 1 = 26 countries and t = 3 as in random
effects model above); yit (share of high-growth firms)
is distributed Gaussian (normal) and g() is the identify
function which yields the linear regression based on
population-averaged method.6 Thus, we have
4
Zeger and Liang (1986) suggest a random effect equivalent
GEE model has an advantage over fixed-effect model because
estimates for variance of regression coefficients are consistent,
even though assumed correlations are not correctly specified.
The panel component for the 3-year period is short and would
not allow fixed-effect model, as losing within-country variation
would be rather imprecise (Allison 2005; Sine et al. 2006).
There was especially little variation of institutional variables; in
fact, inclusion of institutional variables was critical in rejecting
fixed effect using Hausman test. Random model captures more
cross-national variation; GEE is particularly germane here.
5
Taylor (1980) showed that for T C 3 and (N - K) C 9, where
T is the number of time series data, N is the number of cross
sectional units and K is the number of regressors, the statement
holds.
6
We used normal distribution and skewness test (sktest
command in STATA 11) to test for normality of our dependent
and independent variables. High p values (0.19 for our
dependent variables [0.05) are insignificant; therefore, we
cannot reject the hypothesis of normal distribution.
123
B. A. Krasniqi, S. Desai
Eðyit Þ ¼ Xit b y  NðÞ ð3Þ
where yit represents the change of high-growth firms in
country i between year t and t-3 (in our case, we refer
to period in panel we consider the change in date prior
to 36 months of the actual year of the survey), Xit a
vector of covariates for the ith country at time t, and b
is a vector of regression parameters as identified in the
main model (Eq. 1). As with the GLS model, we apply
cluster robust inference to account for serial correla-
tion within panel data context, making consistent use
of robust standard errors.
GEE estimates are marginal with respect to unob-
served heterogeneity.7 GEE is useful to account for
correlations between observations, but require that
covariance structure of correlated observations on a
given subject is specified (Horton and Lipsitz 1999).
The STATA default option requires log-linear, appro-
priate to compare GEE and GLS estimates (see
Klapper et al. 2010; Ballinger 2004). We assume
first-order autocorrelation. Residuals from GEE esti-
mations are correlated so the development of summary
goodness-of-fit statistics is problematic (Ballinger
2004; Zorn 2001). We instead report Wald Chi-square
statistics, which test the null hypothesis that all
regression coefficients are equal to zero. This is not
a goodness-of-fit measure and should not be used for
comparing goodness-of-fit of alternative models
(Ballinger 2004: 16). All models are estimated using
the XTGEE command in STATA.
4 Results and discussion
Results using GLS estimation are reported in Table 5:
Model 1 is the base model, Model 2 includes an
7
Coefficients in random effect models are estimated for a
hypothetical unit (individual) where random effect is zero, but
the population-average model presents coefficients averaged for
the full sample. The models make different assumptions about
underlying distribution of random effects and are oriented to
different research aims. Random (and mixed) effects models
like GLS are more appropriate for describing how effects of
level 1 predictors vary across level 2 units. Population-averaged
models, in contrast, give answers to population-averaged
questions; in other words, they are more appropriate for
predicting about the whole population. Population-averaged
inferences are based on fewer assumptions than random effect
models and more robust if erroneous assumptions about random
effects in the model. Both GLS and GEE allow for the inclusion
of time-invariant variables.
Institutional drivers of high-growth firms

Table 5 GLS estimation. Variables Model 1 Model 2 Model 3

Dependent variable: HGF
prevalence, country-level Formal 0.266 0.417 0.951**
(0.351) (0.365) (0.416)
Informal 0.575 0.564 1.033*
(0.587) (0.526) (0.599)
Inputs -0.0131 -0.0148 0.0934
(0.512) (0.531) (0.505)
Finance 0.258*** 0.254*** 0.242***
(0.0741) (0.0680) (0.0718)
Size of government -0.176 -0.195 -0.171
(0.160) (0.137) (0.142)
Private sector size -1.490** -1.725*** -1.800***
(0.584) (0.594) (0.653)
Innovativeness 0.105*** 0.119*** 0.102***
(0.0296) (0.0306) (0.0367)
Economic growth 0.119 0.0904 0.124
(0.118) (0.112) (0.118)
Formal*Informal 0.734*
(0.422)
FastReformer*Formal -1.469*
(0.774)
FastReformer*Informal -1.084
(0.902)
Constant 15.40*** 16.40*** 16.96***
(4.503) (4.137) (4.513)

Observations 78 78 78
2
Robust standard errors in R 0.54 0.56 0.57
parentheses. *** p \ 0.01; Wald v2
** p \ 0.05; * p \ 0

interaction capturing formal and informal institutions
jointly, and Model 3 adds an interaction capturing the
joint influence of speed of reform with formal and
informal institutions.
Model 1 is the base model, which includes all key
independent and control variables. Results for control
variables are as follows. Inputs show no significance
for HGF prevalence. Finance is positive and signif-
icant (0.258, p \ 0.01), consistent with almost all
empirical studies of new and incumbent firms (see
Klapper et al. 2006), This indicates that more capital
flow in the economy enables the kind of investments
firms need to invest in growth. Innovativeness is
positive and significant (0.105, p \ 0.01), indicating
that more new product innovation in an economy is
associated with a larger share of HGFs in the economy.
Private sector size is negative and significant (-1.490,
p \ 0.05), inconsistent with Gibrat’s Law (see Hen-
rekson and Johansson 2010). Results for formal and
informal variables in Model 1 show that our explana-
tory variables have no direct significant influence on
the prevalence of HGFs in a country.
In Model 2, we test the interplay between formal and
informal institutions by adding the interaction term
Informal*Formal. Results for controls are similar to
Model 1: Inputs is not significant, finance is positive
and significant (0.254, p \ 0.01), innovativeness is
positive and significant (0.119, p \ 0.01), and private
sector size is negative and significant (-1.725,
p \ 0.01). Neither formal nor informal institutions are
found significant, consistent also with Model 1. Inter-
estingly, the Informal*Formal interaction is positive
and significant (0.734; p \ 0.1), indicating comple-
mentarity between formal and informal institutions.

123

This implies that social norms, such as corruption,
could help to accommodate possible adverse effects of
formal institutions and formal regulatory burden, as
suggested by Tonoyan et al. (2010).
Finally, in Model 3, we test how formal and
informal institutions influence HGFs in economies
which are considered to have reformed rapidly. We
introduce two interaction terms to our original model:
FastReformer*Formal and FastReformer*Informal.
These interaction terms add the dummy for reform
speed in different transition settings. Results for
controls are similar as with Models 1 and 2: Inputs is
not significant, finance is positive and significant
(0.242, p \ 0.01), innovativeness is positive and
significant (0.102, p \ 0.01), and private sector size
is negative and significant (-1.800, p \ 0.01).
Interestingly, when the interaction terms are
included in Model 3, we find that both formal
(0.951; p \ 0.05) and informal (1.033; p \ 0.1)
become positive and significant with HGFs. Neither
were significant in the previous models.
We find that FastReformer*Formal is negatively
associated with HGFs (-1.469; p \ 0.1), indicating
that formal institutions in more rapidly transforming
economies negatively influence HGFs. The findings
from Model 3 indicate that informal institutions are
positively associated with HGFs under slower reform
conditions. This suggests that when reforms are slower,
firms may use informal ties more in order to deal with
formal institutions. It is worth noting that the informal
variable is a factor comprising functioning of judiciary
and the courts, anticompetitive behavior of competitors,
policy uncertainty and corruption. It reflects the de facto
practices, regardless of what is actually written into law,
of the legal system. Our findings indicate that informal
institutions could complement formal institutions by
greasing the wheels (Méon and Sekkat 2005) for
business. In contrast, in fast-reforming transition
economies where reforms and rule of law have gained
momentum, informal institutions may be less useful to
facilitate transactions.
Fast-reforming transition economies may be entering
a phase where greater support for rules and legally
specified rights is necessary to support exchange
between market actors. Our findings support the view
that as transition to a market economy moves along, the
relative importance of market-supporting institutions
increases (McMillan and Woodruff 2002), and in
particular based on our findings, an effectively
123
B. A. Krasniqi, S. Desai
functioning judiciary. This can occur because as firms
become more competitive and exchange larger volumes
of goods and services with non-network or non-
relational customers, the type and quality of contracts
changes. Relationship-based (relational) contracting
may be less effective. As markets become more
competitive, products as well as transactions become
more complicated, and ex-ante contracting is necessary
to coordinate buyers and sellers. Overall, our findings
are consistent with the idea that as transition economies
continue to advance, the need for effective formal
institutions can grow (McMillan and Woodruff 2002).
This is a positive finding given that policymakers can
more readily tweak formal institutions, but have to wait
for slow change in informal institutions (Baumol 1990;
Williamson 2000). However, this optimism should be
balanced with the finding that while state intervention
may have a positive impact, some corruption could still
be acceptable to achieve an optimal outcome (see
Acemoglu and Verdier 2000). In other words, some
level of corruption could facilitate investment under
inadequate legal protections. This could represent a sort
of ‘‘growing pain’’ of transition economies. This could
to some degree reflect the time needed for the institu-
tional environment to align its many components
harmoniously.
The positive and significant result for informal
institutions in Model 3 is noteworthy. The more
informal institutions are perceived as barriers to
growth, the greater the share of HGFs in a country.
This implies that despite negative perceptions about
obstacles, firms can not only learn to cope but can also
use informal institutions to thrive and grow. Similar
results have been identified in studies using firm-level
data in Albania (Xheneti and Bartlett 2012) and other
transition economies (Hashi and Krasniqi 2011). A
possible interpretation is that informal institutions like
corruption and relationships can grease the wheels for
business in transition contexts, so despite it being
problematic, it can also be used by firms to facilitate
growth-oriented transactions. In addition, previous
research has identified that the size of demand in a
market positively influences HGFs (Teruel and De Wit
2011), and this finding could also reflect rapidly
expanding markets in transition economies.
Results from the robustness check using GEE
estimations (see Appendix of Table 6) are consistent
in significance and signs, with slight variations in
magnitude.
Institutional drivers of high-growth firms
5 Conclusion
This paper investigated the country-level institutional
drivers of HGFs in 28 transition economies. We
theorized on the role of formal and informal institu-
tions in driving the prevalence of HGFs. We combined
several data sources to create a country-level dataset
for the analysis. Our two-step empirical approach first
identified common factors in the external environment
of firms using data reduction technique; second, we
used GLS estimations to test the influence of formal
and informal institutions and control variables on HGF
prevalence.
Our findings demonstrate that when it comes to HGFs
in particular, it is crucial to look beyond simple direct
institutional effects and to consider that institutions may
interact with one another. The unique features of the
transition environment (Welter and Smallbone 2011)
and divergent paths and speeds of reform warrant
focused analysis. We find that formal and informal
institutions each do not alone influence HGFs and that
the interaction between informal and formal institutions
positively influences HGFs. Our findings suggest that
despite problematic informal institutional environ-
ments, firms are still able to find ways to cope and even
thrive in terms of growth. In fact, HGFs may be able to
leverage informal networks and corruption not only in
direct service of firm activities, but also to erect entry
barriers to prevent competition. Further, we find that the
influence of formal and informal institutions differs in
countries at different stages of transition. In fast-
reforming (more advanced) transition economies, more
problematic formal institutions discourage HGFs.
Our findings have several implications for policy-
makers interested in HGFs. First, government policies
should focus on creating a more competitive business
environment by reducing the burden imposed by formal
institutions, due to the risk that HGFs will use informal
networks and corruption. This does not necessarily
mean less regulation, but it means less burdensome
regulation. Second, the interaction between informal
and formal institutions means that institutional condi-
tions can fill in for one another, putting greater pressure
on policymakers to identify institutional holes or lags.
This is especially important in transition economies,
which tend to host more frequent regulatory reforms
(McMillan and Woodruff 2002; Peng and Luo 2000),
leading to greater volatility in the policy environment,
which could actually worsen the environment despite
perhaps reducing regulatory burden. Firms with knowl-
edge and insider connections to government will be in a
better position to exploit institutional gaps than other
firms. These firms are more likely to be large firms,
putting small or potential new firms at a disadvantage.
Third, policymakers should devote attention to under-
standing how corruption unfolds (Belitski et al. 2016;
Dutta and Sobel 2016) in their specific ecosystem. In
order to develop more effective and appropriate anti-
corruption strategies (Tonoyan et al. 2010), a high
priority for many transition economies, knowing if
corruption greases or sands the wheels for HGFs can be
very useful. Fourth, policymakers can focus on compo-
nents in the external environment which may yield
indirect gains for HGFs. This macro approach can have
important implications at the firm level. One such area is
finance, which is critical for HGFs needing capital to
finance growth activities. Indeed, access to finance is
important for firms regardless of performance and stage
of firm growth (see Klapper et al. 2006). Policymakers
can indirectly influence the cost of external finance by
designing oversight of banking systems, supporting
lending to the private sector, and by finding ways to
match firms with financing. These policy activities are
neither new nor particularly controversial, but not often
targeted for their indirect payoffs. Another area, inno-
vation policy, can have payoffs for HGFs, which we find
to be more prevalent where there is more innovation.
Innovation is important because it not only brings new
products and services at competitive prices to con-
sumers, but it also can serve as input for firms and open
up new markets for potential new firms.
Our findings also raise questions for future research.
One important question concerns obtaining a large
sample size without sacrificing the quality and coverage
of publicly available data and thereby losing the
uniqueness of the variables studied. In addition, larger
and longer panels are important to include other
country-level indicators, like networking, human cap-
ital, innovation, and different types of entrepreneurship.
This could enrich further empirical research on the
question. Future research could also focus on fine-
grained analysis (Davidsson and Wiklund 2001) of
different institutional conditions. Our measures for
formal institutions and informal institutions are identi-
fied using data reduction technique. Future research
could attempt to unpack the significance of each of the
subcomponents of formal and informal factors or to
continue to identify other key institutional conditions in
123
 B. A. Krasniqi, S. Desai

the external environment. Our finding on inputs, a factor
identified by data reduction, is surprising because we
find no relationship. This measure reflects quality of
infrastructure of some types, which has been found in
recent research to be important, e.g., broadband (Au-
dretsch et al. 2015). To the extent the quality of inputs
reflects government spending and quality of governance
in a country (Williamson 2000)—in other words, to the
extent they could reflect distributional outcomes (see
Estrin et al. 2013)—the question of inputs is important
for further unpacking. This could be especially impor-
tant in the transition context because infrastructure,
though often inadequate, is also ‘‘policy-amenable’’
(Acs and Kallas 2008). In addition, future research could
conduct multi-level analysis on HGFs, looking at both
country-level and firm-level conditions which can
influence firm growth. This is a difficult task both
conceptually and methodologically, but one which
could help identify not only which factors matter, but
which matter over others.
Acknowledgments Besnik Krasniqi thanks the US State
Department Fulbright program for support in Fall 2014 for
time at Indiana University, as well as staff at the Institute for
Development Strategies. We thank David Audretsch and Diemo
Urbig for helpful discussion.
Appendix
See Table 6.

Table 6 Robustness check Variables Model 1 Model 2 Model 3

with GEE estimation GEE GEE GEE

Inputs 0.0354 0.00284 0.152

(0.499) (0.493) (0.480)
Formal 0.299 0.455 1.115**
(0.450) (0.425) (0.484)
Informal 0.633 0.599 1.202***
(0.466) (0.448) (0.461)
Finance 0.250*** 0.246*** 0.217***
(0.0710) (0.0679) (0.0645)
Size of government -0.191** -0.204** -0.190**
(0.0973) (0.0896) (0.0837)
Private sector size -1.652** -1.920*** -2.097***
(0.720) (0.701) (0.688)
Innovativeness 0.108*** 0.125*** 0.109***
(0.0372) (0.0365) (0.0355)
Economic growth 0.102 0.0767 0.103
(0.0928) (0.0911) (0.0905)
Formal*informal 0.800*
(0.427)
FastReformer*formal -1.723**
(0.818)
FastReformer*informal -1.206
(1.024)
Constant 16.46*** 17.39*** 18.73***
(3.839) (3.686) (3.577)

Dependent variable: HGF Observations 78 78 78

Robust standard errors in R2
parentheses. *** p \ 0.01; Wald v2 91.39*** 102.05*** 117.34***
** p \ 0.05; * p \ 0

123
Institutional drivers of high-growth firms
References
Acemoglu, D., & Verdier, T. (2000). The choice between
market failures and corruption. American Economic
Review, 90(1), 194–211.
Acs, Z., Desai, S., & Klapper, L. (2008a). What does
entrepreneurship data really show? Small Business Eco-
nomics, 31(3), 265–281.
Acs, Z., & Kallas, K. (2008). State of literature on small- to
medium-sized enterprises and entrepreneurship in low-in-
come communities. In G. Yago, J. Barth, & B. Zeidman
(Eds.), Entrepreneurship in emerging domestic markets
(Vol. 7, pp. 21–45). Milken Institute Series on Financial
Innovation and Economic Growth: Santa Monica.
Acs, Z. J., & Mueller, P. (2008). Employment effects of business
dynamics: Mice, gazelles and elephants. Small Business
Economics, 30(1), 85–100.
Acs, Z., Parsons, W., & Tracy, S. (2008b). High-impact firms:
Gazelles’ revisited,’’ manuscript, SBA reports, SBA office
of advocacy, Washington D.C.
Ahlstrom, D., & Bruton, G. D. (2010). Rapid institutional shifts
and the co-evolution of entrepreneurial firms in transition
economies. Entrepreneurship Theory and Practice, 34(3),
531–554.
Aidis, R., Estrin, S., & Mickiewicz, T. (2008). Institutions and
entrepreneurship development in Russia: A comparative
perspective. Journal of Business Venturing, 23, 656–672.
Aidis, R., Estrin, S., & Mickiewicz, T. M. (2012). Size matters:
Entrepreneurial entry and government. Small Business
Economics, 39(1), 119–139.
Aidis, R., & van Praag, M. (2007). Illegal entrepreneurship
experience: Does it make a difference for business per-
formance and motivation? Journal of Business Venturing,
22(2), 283–310.
Allison, P. (2005). Fixed effects regression methods for longi-
tudinal data using SAS. Cary, NC: SAS Institute.
Amaral, M., & Iglesias, J. (2015). High-growth firms: A
research agenda, presented at IN ? 2015 annual meeting
and external review, June 16. http://in3.dem.ist.utl.pt/docs/
external_review_meeting2015/18-IN-HighGrowthFirms-
Miguel-Amaral.pdf.
Audretsch, D. B., Belitski, M., & Desai, S. (2015).
Entrepreneurship and economic development in cities. The
Annals of Regional Science, 55(1), 33–60.
Audretsch, D., & Dohse, D. (2007). Location: A neglected
determinant of firm growth. Review of World Economics,
143(1), 33–45.
Audretsch, D. B., Heger, D., & Veith, T. (2015b). Infrastructure
and entrepreneurship. Small Business Economics, 44(2),
219–230.
Autio, E. (2007). Global entrepreneurship monitor report on
high-growth entrepreneurship, GEM Global Reports.
London: GERA.
Autio, E. (2009). The Finnish paradox: The curious absence of
high-growth entrepreneurship in Finland (No. 1197).
ETLA discussion paper.
Autio, E., & Acs, Z. (2010). Intellectual property protection and
the formation of entrepreneurial growth aspirations.
Strategic Entrepreneurship Journal, 4(3), 234–251.
Autio, E., & Fu, K. (2015). Economic and political institutions
and entry into formal and informal entrepreneurship. Asia
Pacific Journal of Management, 32(1), 67–94.
Ballinger, G. (2004). Using generalized estimating equations for
longitudinal data analysis. Organizational Research
Methods, 7(2), 127–150.
Baum, J., & Locke, E. (2004). The relationship of entrepre-
neurial traits, skill and motivation to subsequent venture
growth. Journal of Applied Psychology, 89(4), 587–598.
Baum, J., Locke, E., & Smith, K. (2001). A multidimensional
model of venture growth. Academy of Management Jour-
nal, 44(2), 292–303.
Baumol, W. (1990). Entrepreneurship: Productive, unproduc-
tive, and destructive. Journal of Political Economy, 98(5),
893–921.
Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005).
Financial and legal constraints to growth: Does firm size
matter? Journal of Finance, 60(1), 137–177.
Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2008).
Financing patterns around the world: Are small firms dif-
ferent? Journal of Financial Economics, 89(3), 467–487.
Belitski, M., Chowdhury, F., & Desai, S. (2016). Taxes, cor-
ruption, and entry. Small Business Economics, 47(1),
201–216.
Birch, D., Haggerty, A., & Parsons, W. (1997). Who’s creating
jobs?. Cambridge: Cognetics.
Bogas, P., & Barbosa, N. (2013). High-growth firms: What is the
impact of region-specific characteristics?’’ NIPE working
paper 19/2013.
Bornhäll, A., Daunfeldt, S. O., & Rudholm, N. (2015). Sleeping
gazelles: The unseen job creators? In J. Katz & A. Corbett
(Eds.), Entrepreneurial Growth: Individual, Firm, and
Region (pp. 161–185). Emerald Group Publishing Limited.
Bos, J., & Stam, E. (2014). Gazelles and industry growth: A
study of young high-growth firms in The Netherlands. In-
dustrial and Corporate Change, 23(1), 145–169.
Bosma, N., Hessels, J., Schutjens, V., Van Praag, M., & Ver-
heul, I. (2012). Entrepreneurship and role models. Journal
of Economic Psychology, 33(2), 410–424.
Bravo-Boscia, A., Criscuolo, C., & Menon, C. (2013). What
drives the dynamics of business growth? OECD science,
technology and industry paper 1, April 4.
Brown, J., Earle, J., & Lup, D. (2005). What makes small firms
grow? Finance, human capital, technical assistance, and the
business environment in Romania. Economic Development
and Cultural Change, 54(1), 33–70.
Bruton, G., Ahlstrom, D., & Obloj, K. (2008). Entrepreneurship
in emerging economies: Where are we today and where
should the research go in the future. Entrepreneurship
Theory and Practice, 32(1), 1–14.
Busenitz, L., West, G, I. I. I., Shepherd, D., Nelson, T., Chan-
dler, G., & Zacharakis, A. (2003). Entrepreneurship
research in emergence: Past trends and future directions.
Journal of Management, 29(3), 285–308.
Carlin, W., Fries, S., Schaffer, M., & Seabright, P. (2001).
Competition and enterprise performance in transition
economies, EBRD working paper 63.
Cassar, G. (2006). Entrepreneur opportunity costs and intended
venture growth. Journal of Business Venturing, 21(5), 610–632.
123

Cassono, F., Joeveer, K., & Svejnar, J. (2013). Cash flow vs.
collateral-based credit. Economics of Transition, 21(2),
269–300.
Chan, Y., Bhargava, N., & Street, C. (2006). Having arrived:
The homogeneity of high-growth small firms. Journal of
Small Business Management, 44(3), 426–440.
Clark, E., & Soulsby, A. (2005). Organizational change in post-
communist Europe: Management and transformation in
the Czech Republic. London: Routledge.
Coad, A. (2009). The growth of firms. Cheltenham: Edward
Elgar.
Coad, A., Daunfeldt, S., Hölzl, W., Johansson, D., & Nightingale,
P. (2014). High-growth firms: Introduction to the special
section. Industrial and Corporate Change, 23(1), 91–112.
Coad, A., & Rao, R. (2008). Innovation and firm growth in high-
tech sectors: A quantile regression approach. Research
Policy, 37, 633–648.
Colombelli, A., Krafft, J., & Quartaro, F. (2014). High-growth
firms and technological knowledge: Do gazelles follow
exploration or exploitation strategies. Industrial and Cor-
porate Change, 23(1), 261–291.
Davidsson, P., & Wiklund, J. (2001). Levels of analysis in
entrepreneurship research. Entrepreneurship Theory and
Practice, 25(4), 81–100.
Davidsson, P., & Wiklund, J. (2006). Conceptual and empirical
challenges in the study of firm growth. Entrepreneurship
and the Growth of Firms, 1, 39–61.
Daunfeldt, S. O., Elert, N., & Johansson, D. (2015). Are high-
growth firms overrepresented in high-tech industries? In-
dustrial and Corporate Change, 25(1), 1–21.
Delmar, F., Davidsson, P., & Gartner, W. (2003). Arriving at the
high-growth firm. Journal of Business Venturing, 18,
189–216.
Delmar, F., & Shane, S. (2006). Does experience matter? The effect
of founding team experience on the survival and sales of newly
founded ventures. Strategic Organization, 4(3), 215–247.
Demirgüc-Kunt, A., Klapper, L. F., & Panos, G. A. (2011).
Entrepreneurship in post-conflict transition1. Economics of
Transition, 19(1), 27–78.
Desai, S., Acs, Z., & Weitzel, U. (2013). A model of destructive
entrepreneurship: Insight for conflict and postconflict
recovery. Journal of Conflict Resolution, 57(1), 20–40.
Desai, S., & Motoyama, Y. (2015). The regional environment:
Indianapolis-insights from high-growth companies.
Kauffman Foundation Research Series on City, Metro, and
Regional Entrepreneurship.
Deschryvere, M. (2008). High-growth firms and job-creation in
Finland. Discussion paper 1144, Heslinki: ETLA.
Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A.
(2002). The regulation of entry. Quarterly Journal of
Economics, 117(1), 1–37.
Do, Q., & Levchenko, A. (2009). Trade, inequality and the
political economy of institutions. Journal of Economic
Theory, 144(4), 1489–1520.
Du, J., & Temouri, Y. (2015). High-growth firms and produc-
tivity: Evidence from the United Kingdom. Small Business
Economics, 44(1), 123–143.
Dutta, N., & Sobel, R. (2016). Does corruption ever help
entrepreneurship? Small Business Economics, 47(1),
179–199.
123
B. A. Krasniqi, S. Desai
Estrin, S., Korosteleva, J., & Mickiewicz, T. (2013). Which
institutions encourage entrepreneurial growth aspirations?
Journal of Business Venturing, 28(4), 564–580.
Estrin, S., & Mickiewicz, T. (2010). Entrepreneurship in tran-
sition economies: The role of institutions and generational
change. IZA discussion papers 4805, Bonn: IZA.
European Bank of Reconstruction and Development. Various
years: Transition Report. London: EBRD.
European Commission. (2014). European competitiveness
report: Helping firms grow. Brussels: Directorate-General
for Enterprise and Industry, European Commission.
Eurostat, O.E.C.D. (2007). Eurostat-OECD manual on business
demography statistics.
Falkenhall, B., & Junkka, F. (2009). High-growth firms in
Sweden 1997–2007: Characteristics and development
patterns. Stockholm: Report, Swedish Agency for Growth
Policy Analysis.
Fogel, K. (2006). Oligarchic family control, social economic
outcomes, and the quality of government. Journal of
International Business Studies, 37(5), 603–622.
Fries, S., Lysenko, T., & Polanec, S. (2007). The business
environment and enterprise performance in transition:
Evidence from a large-scale survey. ABCDE. In F. Bour-
guignon, P. Jacquet, & B. Pleskovic (Eds.), Economic
Integration and Social Responsibility (p. 245). Washing-
ton, DC: World Bank Publications.
Garcia, P., & Puente, S. (2012). What makes a high-growth
firm? A dynamic probit analysis using Spanish firm-level
data. Small Business Economics, 39(4), 1029–1041.
Goedhuys, M., & Sleuwagen, L. (2010). High-growth entre-
preneurial firms in Africa: A quantile regression approach.
Small Business Economics, 34(1), 31–51.
Goedhuys, M., & Veugelers, R. (2012). Innovation strategies,
process and product innovations and growth: Firm-level
evidence from Brazil. Structural Change and Economic
Dynamics, 23(4), 516–529.
Gui, H., Xu, E., & Jacobs, M. (2014). Managerial political ties
and firm performance during institutional transitions.
Journal of Business Research, 67(2), 116–127.
Harrison, R., Jaumandreu, J., Mairesse, J., & Peters, B. (2008).
Does Innovation stimulate employment? A firm-level
analysis using comparable micro-data from four European
Countries. Cambridge: National Bureau of Economic
Research.
Hashi, I., & Krasniqi, B. (2011). Entrepreneurship and SME
growth: Evidence from advanced and laggard transition
economies. International Journal of Entrepreneurial
Behavior and Research, 17(5), 456–487.
Henrekson, M., & Johansson, D. (2008). Competencies and
institutions fostering high-growth firms. Foundations and
Trends in Entrepreneurship, 5(1), 1–80.
Henrekson, M., & Johansson, D. (2010). Gazelles as job cre-
ators: A survey and interpretation of the evidence. Small
Business Economics, 35(2), 227–244.
Hölzl, W. (2009). Is the R&D behavior of fast-growing SMEs
different? Evidence from CIS III data for 16 countries.
Small Business Economics, 33(1), 59–75.
Hölzl, W. (2011). Peristence, survival and growth: A closer look
at 20 years of high growth firms and firm dynamics in
Austria. Working paper 403, WIFO.
Institutional drivers of high-growth firms
Horton, N. J., & Lipsitz, S. R. (1999). Review of software to fit
generalized estimating equation regression models. The
American Statistician, 53(2), 160–169.
Johnson, S., Boone, P., Breach, A., & Friedman, E. (2000).
Corporate governance in the Asian financial crisis. Journal
of Financial Economics, 58(1), 141–186.
Katila, R., & Ahuja, G. (2002). Something old, something new:
A longitudinal study of search behavior and new product
introduction. Academy of Management Journal, 45(6),
1183–1194.
Klapper, L., Amit, R., & Guillén, M. F. (2010). Entrepreneur-
ship and firm formation across Countries. In J. Lerner & A.
Schoar (Eds.), International differences in entrepreneur-
ship (pp. 129–158). Chicago: University of Chicago Press.
Klapper, L., Laeven, L., & Rajan, R. (2006). Entry regulation as
a barrier to entrepreneurship. Journal of Financial Eco-
nomics, 82(3), 591–629.
Kolvereid, L. (1992). Growth aspirations among Norwegian
entrepreneurs. Journal of Business Venturing, 7(3),
209–222.
Krasniqi, B. (2007). Barriers to entrepreneurship and SME
growth in transition: The case of Kosova. Journal of
Developmental Entrepreneurship, 12(1), 71–94.
Krasniqi, B. (2012). Building an expanded small firm growth
model in a transitional economy: Evidence on fast growing
firms. Journal of East-West Business, 18(3), 231–273.
Krasniqi, B., & Mustafa. M. (2016). Small firm growth in a post-
conflict environment: The role of human capital, institu-
tional quality, and managerial capacities, International
Entrepreneurship and Management (forthcoming).
Lechner, C., & Dowling, M. (2003). Firm networks: External
relationships as sources for the growth and competitiveness
of entrepreneurial firms. Entrepreneurship and Regional
Development, 15(1), 1–26.
Lee, N. (2014). What holds back high-growth firms? Evidence
from UK SMEs. Small Business Economics, 43(1),
183–195.
Levie, J., & Autio, E. (2011). Regulatory burden, rule of law,
and entry of strategic entrepreneurs: An international panel
study. Journal of Management Studies, 48(6), 1392–1419.
Liang, K., & Zeger, S. (1986). Longitudinal data analysis using
generalized linear models. Biometrika, 73(1), 13–22.
LiPuma, J., Newbert, S., & Doh, J. (2013). The effect of insti-
tutional quality on firm export performance in emerging
economies: A contingency model of firm age and size.
Small Business Economics, 40(4), 817–841.
Littunen, H., & Tohmo, T. (2003). The high growth in new
metal-based manufacturing and business service firms in
Finland. Small Business Economics, 21(2), 187–200.
McMillan, J., & Woodruff, C. (2002). The central role of
entrepreneurs in transition economies. Journal of Eco-
nomic Perspectives, 16(3), 153–170.
Manolova, T., & Yan, A. (2002). Institutional constraints and
strategic responses of new and small firms in a trans-
forming economy: The case of Bulgaria. International
Small Business Journal, 20(2), 163–184.
Mason, C., & Brown, R. (2010). High growth firms in Scotland.
Research report, Glasgow: Scottish Enterprise.
Mason, C., & Brown, R. (2013). Creating good public policy to
support high growth firms. Small Business Economics,
40(2), 211–225.
Méon, P.G., & Sekkat, K. (2005). Does corruption grease or
sand the wheels of growth? Public Choice, 122(1–2),
69–97.
Meon, P., & Weill, L. (2008). Is corruption an efficient grease.
World Development, 38(3), 244–259.
Meyer, K. E., Estrin, S., Bhaumik, S. K., & Peng, M. W. (2009).
Institutions, resources, and entry strategies in emerging
economies. Strategic Management Journal, 30(1), 61–80.
Mohr, V., Garnsey, E., & Theyel, G. (2014). The role of alli-
ances in the early development of high-growth firms. In-
dustrial and Corporate Change, 23(1), 233–259.
Moreno, A., & Casillas, J. (2007). High-growth SMEs versus
non-high-growth SMEs: A discriminant analysis. En-
trepreneurship and Regional Development, 19(1), 69–88.
Moreno, F., & Coad, A. (2015). High-growth firms: Stylized
facts and conflicting results. In J. Katz & A. Corbett (Eds.),
Entrepreneurship Growth: Individual, Firm, and Region
(pp. 187–230). Emerald Group Publishing Limited.
Nightingale, P., & Coad, A. (2014). Muppets and gazelles:
Political and methodological biases in entrepreneurship
research. Industrial and Corporate Change, 23(1), 113–143.
North, D. (1990). Institutions, institutional change and eco-
nomic performance. Cambridge: Cambridge University
Press.
North, D. C. (1995). The new institutional economics and third
world development. In J. Harriss, J. Hunter & C. M. Lewis
(Eds.), The new institutional economics and third world
development (Vol. 21). London: Routledge.
OECD. (2011). Financing high-growth firms: The role of angel
investors, OECD DSTI Policy Brief, Paris: OECD.
OECD. (2013). What drives the dynamics of business growth?
OECD Science, Technology and Industry Policy Papers,
No. 1. Paris: OECD.
Parker, S. C., Storey, D. J., & Van Witteloostuijn, A. (2010).
What happens to gazelles? The importance of dynamic
management strategy. Small Business Economics, 35(2),
203–226.
Parsley, C., & Halabisky, D. (2008). Profile of growth firms: A
summary of Industry Canada Research, Industry Canada,
Small Business Research and Statistics, report.
Peev, E. (2015). Institutions, economic liberalization and firm
growth: Evidence from European transition economies.
European Journal of Law and Economics, 40(1), 149–174.
Peng, M. (2003). Institutional transitions and strategic choices.
Academy of Management Review, 28(2), 275–296.
Peng, M., & Heath, P. (1996). The growth of the firm in planned
economies in transition: Institutions, organizations and
strategic choice. Academy of Management Review, 21(2),
492–528.
Peng, M. W., & Luo, Y. (2000). Managerial ties and firm per-
formance in a transition economy: The nature of a micro-
macro link. Academy of Management Journal, 43(3),
486–501.
Penrose, E. (1959). Theory of the growth of the firm. New York:
Wiley Publishing.
Phan, P. H. (2004). Entrepreneurship theory: Possibilities and
future directions. Journal of Business Venturing, 19(5),
617–620.
Raiser, M., Rousso, A., Steves, F., & Teksoz, U. (2008). Trust in
transition: Cross-Country and firm evidence. Journal of
Law Economics and Organization, 24(2), 407–433.
123

Rauch, A., & Rijsdijk, S. (2013). The effects of general and
specific human capital on long-term growth and failure of
newly founded businesses. Entrepreneurship Theory and
Practice, 37(4), 923–941.
Reynolds, P., Bosma, N., Autio, E., Hunt, S., De Bono, N.,
Servais, I., & Chin, N. (2005). Global entrepreneurship
monitor: Data collection design and implementation
1998–2003. Small Business Economics, 24(3), 205–231.
STATA. (2013). Stata longitudinal-data/panel-data reference
manual: Release 13. College Station, TX: StataCorp LP,
Stata Press.
Schendel, D., & Hitt, M. (2007). Introduction to volume 1.
Strategic Entrepreneurship Research, 1, 1–6.
Schreyer, P. (2000). High-growth firms and employment,
OECD science, technology and industry working papers,
2000/3.
Shane, S. (2009). Why encouraging more people to become
entrepreneurs is bad public policy. Small Business Eco-
nomics, 33(2), 141–149.
Siepel, J., Cowling, M., & Coad, A. (2015). Long-run drivers of
growth for UK high-technology firms. Advances in
Entrepreneurship: Firm Emergence and Growth. In J. Katz
& A. Corbett (Eds.), Entrepreneurial Growth: Individual,
Firm, and Region (pp. 95–126).Emerald Group Publishing
Limited.
Sine, W. D., Mitsuhashi, H., & Kirsch, D. A. (2006). Revisiting
burns and stalker: Formal structure and new venture per-
formance in emerging economic sectors. Academy of
Management Journal, 49(1), 121–132.
Smallbone, D., & Welter, D. (2001). The distinctiveness of
entrepreneurship in transition economies. Small Business
Economics, 16(4), 249–262.
Smallbone, D., & Welter, F. (2012). Entrepreneurship and
institutional change in transition economies: The Com-
monwealth of Independent States, Central and Eastern
Europe and China compared. Entrepreneurship and
Regional Development, 24(3–4), 215–233.
Sobel, R. S. (2008). Testing Baumol: Institutional quality and
the productivity of entrepreneurship. Journal of Business
Venturing, 23(6), 641–655.
Stam, E., & van Stel, A. (2011). Types of entrepreneurship and
economic growth. In M. Goedhuys, W. Naude, & E.
Szirmai (Eds.), Innovation, entrepreneurship and eco-
nomic development (pp. 78–95). Oxford: Oxford Univer-
sity Press.
Stam, E., & Wennberg, K. (2010). The roles of R&D in new firm
growth. Small Business Economics, 33, 77–89.
Stenholm, P., Acs, Z., & Wuebker, R. (2014). Exploring coun-
try-level institutional arrangements on the rate and type of
entrepreneurial activity. Journal of Business Venturing,
28(1), 176–193.
123
B. A. Krasniqi, S. Desai
Storey, D. (1994). Understanding the small business sector.
New York: Routledge.
Taylor, W. E. (1980). Small sample considerations in estimation
from panel data. Journal of Econometrics, 13(2), 203–223.
Teruel, M., & De Wit, G. (2011). Determinants of high-growth
firms: Why have some countries more high-growth firms
than others? IME research report H201107.
Thai, M. T. T., & Turkina, E. (2014). Macro-level determinants
of formal entrepreneurship versus informal entrepreneur-
ship. Journal of Business Venturing, 29(4), 490–510.
Tominc, P., & Rebernik, M. (2007). Growth aspirations and
cultural support for entrepreneurship: A comparison of
Post-socialist countries. Small Business Economics,
28(2–3), 239–255.
Tonoyan, V., Strohmeyer, R., Habib, M., & Perlitz, M. (2010).
Corruption and entrepreneurship: How formal and infor-
mal institutions shape firm behavior in transition and
mature market economies. Entrepreneurship Theory and
Practice, 34(5), 803–831.
United Nations Office on Drugs & Crime. (2010). World drug
report 2010. New York: United Nations Publications.
Verheul, I., van Stel, A., & Thurik, E. (2006). Explaining female
and male entrepreneurship at the country level. En-
trepreneurship and Regional Development, 18(2),
151–183.
Welter, F., & Smallbone, D. (2011). Institutional perspectives
on entrepreneurial behavior in challenging environments.
Journal of Small Business Management, 49(1), 107–125.
Wiklund, J., Davidsson, P., & Delmar, F. (2003). What do they
think and feel about growth? An expectancy-value
approach to small business managers’ attitudes toward
growth. Entrepreneurship Theory and Practice, 27(3),
247–270.
Wiklund, J., & Shepherd, D. (2003). Aspiring for, and achieving
growth: The moderating role of resources and opportuni-
ties. Journal of Management Studies, 40(8), 1919–1941.
Williamson, O. (2000). The new institutional economics: Tak-
ing stock, looking ahead. Journal of Economic Literature,
38(3), 595–613.
Wooldridge, J. (2013). Introductory econometrics: A modern
approach. 5th edn. Nelson Education.
Xheneti, M., & Bartlett, W. (2012). Institutional constraints and
SME growth in post-communist Albania. Journal of Small
Business and Enterprise Development, 19(4), 607–626.
Zeger, S. L., & Liang, K. Y. (1986). Longitudinal data analysis
for discrete and continuous outcomes. Biometrics, 42(1),
121–130.
Zorn, C. (2001). Generalizing estimating equations models for
correlated data: A review with applications. American
Journal of Political Science, 45(3), 470–490.