Effects of rule of law on firm performance in South Africa

Abstract

PurposeSouth Africa (SA) has undertaken significant institutional reforms since the change in its political regime in 1994. During the same period, SA has also experienced rapid economic growth. Although it is widely accepted that institutional reform generally has positive impacts on firm competitiveness and economic growth, the extent to which institutional reforms in SA have been of benefit to businesses is not well understood. The purpose of this paper is to focus specifically on the rule of law and assesses the extent to which the rule of law affects business performance.Design/methodology/approachThe study uses multinomial logistic regression techniques and data, from a large‐scale firm level survey (n=751) of SA businesses undertaken by the World Bank in 2007, to estimate the effects of various elements of the rule of law on firm performance.FindingsCrime and theft were found to have the largest impact on business performance, followed by corruption and tax administration. Political instability and the effectiveness of the court system were not perceived to affect business performance significantly.Research limitations/implicationsOngoing institutional reforms aimed at improving business performance and competitiveness in SA should pay particular attention to the design of effective policies to address crime, theft, corruption and tax administration issues faced by businesses.Originality/valueThe study is one of the first to provide empirical evidence based on a large‐scale survey of the extent to which crime and theft, corruption and tax effectiveness inhibit business growth in SA.

Network utilities performance and institutional quality: Evidence from the Italian electricity sector

“…suggesting that lower crime rates and higher quality of the court system can decrease firmlevel inefficiency. This result is compatible with previous works on the impact of rule of law on business performance (Roxas et al, 2012). A more effective government and stronger judiciary system, will assure firms that their investment is not at risk and are encouraged to invest in less flexible but more efficient technologies (Bergara et al, 1998).…”

Chief executive officers' dispositional optimism, host country's rule of law, and foreign market equity mode choice of Ghanaian small and medium‐sized enterprises

“…In this study, we used five items (Table 1) to measure perceived level of rule of law. These items were adapted from B. Roxas et al (2012), and were captured on a seven‐point Likert scale, with anchors ranging from 1 = strongly disagree to 7 = strongly agree .…”

“…These items were adapted from B. Roxas et al (2012), and were captured on a seven-point Likert scale, with anchors ranging from 1 = strongly disagree to 7 = strongly agree.…”

“…In addition to the foregoing gap, there is limited understanding of how specific elements of the overall institutional environment (e.g., rule of law) interact with relevant individual traits, such as optimism, to explain the internationalization decision-making process of CEOs in emerging economies (e.g., Naude´, Gries, Wood, & Meintjes, 2008;Roxas, Chadee, & Erwee, 2012;Vaillant & Lafuente, 2007).…”

“…In addition to the foregoing gap, there is limited understanding of how specific elements of the overall institutional environment (e.g., rule of law) interact with relevant individual traits, such as optimism, to explain the internationalization decision‐making process of CEOs in emerging economies (e.g., Naude´, Gries, Wood, & Meintjes, 2008; Roxas, Chadee, & Erwee, 2012; Vaillant & Lafuente, 2007). Even though the impact of the external environment on strategic decision‐making has been recognized in the upper echelons literature, prevailing reviews (e.g., Carpenter, Geletkanycz, & Sanders, 2004; Finkelstein, Hambrick, & Cannella, 2009) provide limited explanation of how and when specific macro factors effectively influence managerial decisions (Yamak, Nielsen, & Escribá‐Esteve, 2014).…”