Local governance and business performance in Vietnam: the transaction costs’ perspective

Abstract

This paper adopts transaction costs perspective to explain why growth of small and medium-sized enterprises (SMEs) may vary across regions of an emerging economy. Furthermore, it is argued that young and small firms gain more from improvement of local governance than old and large firms do. In addition, depending on the institutional history, SMEs will respond differently to the incentives provided by local governance. Analysing more than 300,00 SMEs in Vietnam during the 2006-2012 period, it is shown that higher quality local governance positively influences local SME revenue growth; this effect is stronger for young and small firms, and matters more where institutional history suggests less support for entrepreneurship. JEL codes: D02, H73, L25, L26

Entrepreneurial Reinvestment: Local Governance, Ownership, and Financing Matter—Evidence from Vietnam

“…Du and Mickiewicz () investigate the contemporary Chinese entrepreneurial sector, and propose that “while a strong institutional environment implies the same treatment for all economic actors, a weak one does not, […therefore] to understand the impact of a weak institutional environment, one needs to analyse the institutional patterns at a sub‐national level.” Nguyen, Mickiewicz, and Du () expand this proposition by examining the role of local governance quality and confirming its positive effects on local firm performance in Vietnam. When local authorities have room to interpret and execute central laws arbitrarily, which is particularly the case in the weak institutional settings found in developing countries, institutional arrangements are domestically heterogeneous among regions (Malesky ).…”

“…Local governance is an unexplored institutional factor (Nguyen, Mickiewicz, and Du ). In general, institutions are humanly devised constraints that shape human behaviors and decisions (North ).…”

“…Because of their age and size liabilities, the operations of these firms are typically bounded in local markets that are strongly shaped by the governance quality of their local authorities. We adopt the viewpoints of Nguyen, Mickiewicz, and Du (), and Du and Mickiewicz () to propose that if one wishes to understand entrepreneurial activities, it is more appropriate to analyze the “play of the game” (the execution of regulations) rather than the “rules of the game” (the formal rules of law). In this study, we therefore focus on examining the impact of a set of local governance arrangements on firm reinvestment decisions rather than on the more general institutional configurations.…”

Subnational home market bias in Vietnam: Evidence from enterprise‐level data

“…This variable accounts for differences in business culture between the north and other areas (see, e.g., Cung, Pham, Bui, & Dapice, ). We hypothesise that SMEs in the north are more insular as commercial activities in the country have predominantly been in the south, the seat of government being in the north for most of the country's history, and pro‐entrepreneurial attitudes are more prevalent in southern provinces (Nguyen, Mickiewicz, & Du, ). Moreover, due to their more collectivist nature, northern consumers might prefer to buy more from local (home) sellers.…”

High-performance work systems and innovation in Vietnamese small firms

“…Small and medium sized enterprises (SMEs) account for 98% of all businesses in Vietnam, thereby contributing significantly to national economic growth and prosperity (Nguyen, Mickiewicz and Du, 2018). Vietnam's dynamic environment -its young population, growing wealth, changing consumer attitudes and urbanisation-are factors pushing Vietnam through a period of great change (Nguyen and Bryant, 2004;Zhu and Verstraeten, 2013).…”