Regulatory Institutional Environment and Operational Performance: The Roles of Inter-Firm Governance Mechanisms and Structural Network Complexity

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The regulatory institutional environment (hereafter regulatory environment) has important implications on a firm’s strategies and operations. Accordingly, several scholarly works, over the years, have focused on investigating its influences on business performance outcomes. Yet, how regulatory environment affects business performance outcomes is still not clear as the emerged evidences have been largely inconsistent and inconclusive. Of interest, knowledge of the conditional processes through which regulatory environment may enhance or undermine operational performance appears limited. Drawing on institutional theory and inter-firm governance literature, this study proposes and tests a model that suggests that regulatory environment drives operational performance, via inter-firm governance mechanisms, but that this indirect effect is conditional upon levels of structural network complexity. The study uses a sample of 331 firms from the service and manufacturing sectors in Ghana—a developing economy in sub-Saharan Africa—to test the proposed relationship. Largely supporting the theoretical predictions, the results from structural equation modelling show that under varying conditions of structural network complexity, different dimensions of governance mechanisms (formal control and social control) play differential mediating roles in the relationship between regulatory environment and firm operational performance. Specifically, the study finds that at low and high levels of structural network complexity, the positive indirect effects of regulatory environment on operational performance, via formal control and social control are strengthened respectively. The significance of the findings is that they provide a possible explanation for the divergent and sometimes conflicting results obtained on the direct regulatory environment-performance relationship. The theoretical implication is that different dimensions of governance mechanisms channel the impact of macro level regulatory conditions to firm level operational performance at different levels of structural network complexity. Practical implications for managers who make strategic and operational decisions about inter-organizational business networks are discussed.
A Doctoral thesis submitted to the Department of Supply Chain and Information Systems, Kwame Nkrumah University of Science and Technology School of Business, Kumasi in partial fulfillment of the requirements for the award of DOCTOR OF PHILOSOPHY IN PROCUREMENT AND SUPPLY CHAIN MANAGEMENT