The purpose of this study is to analyse the effects of market-based and nonmarket-based strategies on firm performance in African countries. This study also investigates host country institutions' effect on the relationship between firm strategies and performance in these countries.
Data of 1,276 firms in five African countries were obtained from two different sources: The World Bank Enterprise Database and The Global Competitiveness Report. Two-stage least squares regression was applied.
Both market-based strategies and corporate political activity (CPA)improve firm performance in the African countries included in the analysis. Institutional development also has a direct positive impact on firm performance. However, the effect of CPA weakens as the host country shifts towards more efficient, market-oriented institutions. Furthermore, the results show that local African firms benefit more from institutional development than foreign firms.
The paper confirms and extends our understanding of the dynamic fit between institutions and strategy by highlighting the moderating role of institutional development on CPA and market-based strategies in enhancing firm performance.
