What is it about?

Small and medium-sized enterprises (SMEs) are essential drivers of economic growth and job creation, but in many countries they operate in environments with “institutional voids” - gaps or weaknesses in infrastructure, regulations, and governance. These voids can make it harder for SMEs to grow, attract investment, and build a strong reputation. This study uses World Bank Enterprise Survey data from over 118,000 firms in 140 countries to examine how institutional voids affect SME performance across three dimensions: growth, investment commitment, and reputation. By applying structural equation modelling (SEM), we identify which specific institutional factors, such as tax administration, licensing processes, access to skilled labour, and informal competition, have the greatest impact.

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Why is it important?

Understanding how institutional voids influence SME performance is vital for creating business strategies and public policies that help these firms succeed. Our findings show that formal institutional infrastructure has a strong positive link with SMEs’ reputation and that targeted improvements in regulatory processes and market access can significantly boost SME competitiveness. The framework we developed offers SMEs and policymakers a tool to manage institutional challenges more effectively, guiding investment in resources, skills, and partnerships that can help firms thrive even in less supportive environments.

Perspectives

Having worked on sustainability and development issues across diverse economies, I see SMEs as the backbone of local economic resilience. This research gave me the opportunity to quantify how structural weaknesses in institutions affect their day-to-day realities, from accessing markets to securing investor trust. My hope is that this work helps shift the focus from simply identifying problems to actively designing solutions that equip SMEs to navigate and even turn institutional gaps into opportunities. For policymakers, the message is clear: building stronger formal institutions isn’t just good governance, it’s a direct investment in SME success.

Dr Krish Saha
Birmingham City University

Read the Original

This page is a summary of: Impact of institutional voids on the performance of small and medium-sized enterprises, Journal of Strategy and Management, March 2022, Emerald,
DOI: 10.1108/jsma-07-2021-0155.
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