Regulatory environment, environmental dynamism, political ties, and performance: Study of entrepreneurial firms in a developing economy

Regulatory environment, environmental dynamism, and political ties are typically modelled as separate antecedents of firm performance. However, the boundary conditions for such models are less examined in a developing country context where regulatory environments have been argued to be weak. Accordingly, drawing on institutional and social capital theories, the purpose of this paper is to examine the interrelationship between regulatory environment, political ties, environmental dynamism, and firm performance.

The study uses primary data gathered from 372 entrepreneurial firms in Nigeria, a Sub-Saharan African country.

The findings of the paper suggest that that regulatory environment is negatively related to firm performance. However, political ties and environmental dynamism moderate the regulatory environment-firm performance relationship such that such relationship is positive and significant.

First, the study provides important insights on how weak and underdeveloped regulatory environment negatively affect the performance of firms. In other words, the study represents a response to call for the development of better regulatory environment since regulatory environment plays significant role in firm performance. Second, this study also demonstrates the importance of political ties and environment dynamism on firm performance in an emerging economy such as Nigeria where regulatory environment is weak.

To the authors’ knowledge, this study is the first study from the perspective of Sub-Saharan Africa that examine the moderating role of political ties and environmental dynamism on regulatory environment-firm performance relationship.