Do institutions matter in Latin America? A longitudinal analysis of institutional changes on Brazilian companies performance

Abstract

Purpose - The purpose of this paper is to analyse the effects of institutional changes on business landscapes and companies performance in Brazil. Design/methodology/approach - The authors have developed a multiple empirical strategy, including qualitative and quantitative methods. As a qualitative method, we used business landscapes to describe how clustered firm performance varies across industries. We collected return on equity (ROE) and equity data from Brazilian listed companies in a 24-years range, and compared three different 8-years institutional periods. As a quantitative method, the authors compared variance across periods and developed a panel analysis assuming fixed and random effects models. Findings - The main results indicate that ROE differences among institutional periods in Brazil are relevant, indicating that there is an important institutional effect on performance and the impacts of those institutional effects may be different across industries. The impact of institutional changes seems to be considerable in understanding industry and firm performance. In addition, the improvement of the institutional framework increases the variance of firm performance around the mean. Research limitations/implications - The limitations are related to the sample, classification treatment for missing values and outliers. Practical implications - Managers should consider that institutional settings affect industries in a different manner when developing their strategies. Originality/value - Despite the fact that the importance of industry, firm and time effects has been empirically examined, there is still an empirical gap concerning if and how institutional changes affect industries and the configuration of business landscapes.