Political environment, employee tenure security and firm performance in middle-income economies

Abstract

Purpose – The study investigates the effect of political instability and employee tenure security on the performance of firms in middle-income economies (MIEs) after controlling for the influence of corruption, international quality certification, external auditor services and firm age. It examines whether ownership and sector effects matter in the explored relationships. Design/methodology/approach – The study adopts the generalized method of moments estimator and collects firm-level cross-sectional data from 77 MIEs. Findings – The evidence shows that political uncertainty, employee tenure security and firm age negatively impact firm performance. Also, external quality assurance mainly improves firm performance. Additionally, foreign-owned firms benefit from corruption more than their domestic counterparts. Moreover, there are ownership and sector effects in the firm performance drivers. Practical implications – The findings suggest the need for MIE firm managers to implement policies and programs to improve permanent employees' efficiency, commitment and honesty. Policy makers and political actors must work toward a stable political environment in MIEs. The policy must also focus on at least minimizing corruption. Originality/value – The study shows the contributions of employee tenure security, political instability and corruption to the performance of MIE firms. It documents sector and ownership effects in the factors influencing firm performance.

Keywords

• Political instability
• Employee–organization relationship
• Corruption
• Resource-based view
• Market-based view
• Social exchange