Firms Facing New Institutions: Transactional Governance in Romania

How quickly do firms respond to new institutions? Romanian survey data permits investigation of this question, using variables summarizing firms' strategies on transactional governance. These variables are regressed on the factors that should determine efficient behavior according to standard agency and transaction-cost theories. The results suggest that transactional strategies do not currently reflect efficiency considerations. Instead, behavior reflects peculiarities of transition: history, ownership, and state-relations are more important in determining responses to new institutions. Firms use institutions but do not evidence efficient responses to them. Appropriate institutional reform deploys information on how firms adjust to institutions before the long-run.