Volume 6 - Issue 18 (2026-09-20)

The Impact of Institutional Quality and Transaction Costs on Startup Survival: An Econometric Analysis in Emerging Markets

Prof. Dr: Ahmad Al-Sayed Omar

College of Business Administration- Department of Business Administration

Majmaah University-Kingdom of Saudi Arabia

This study investigates the empirical mechanisms through which national institutional quality and micro-level transaction costs govern the survival probabilities of early-stage entrepreneurial ventures across emerging market economies. It seeks to decouple genuine productive market selection from non-productive operational attrition caused by institutional friction.

Drawing on an unbalanced longitudinal panel of 14,820 newly established private enterprises (56,310 firm-year observations) across 28 emerging economies over the period 2012–2024, the study employs a semi-parametric Cox Proportional Hazards Model. Macro-institutional indices from the Worldwide Governance Indicators (WGI) and Doing Business metrics are merged with microeconomic data from the World Bank Enterprise Surveys (WBES). The econometric identification strategy addresses unobserved heterogeneity and potential endogeneity using Two-Step System GMM estimation and diagnostic Schoenfeld residual tests.

The empirical estimates reveal that protracted judicial contract enforcement schedules significantly amplify startup failure hazards, indicating that judicial delays translate commercial default into enterprise insolvency. Administrative setup frictions impose a regressive regulatory drag , prematurely depleting working capital. Furthermore, institutional quality acts as a macro-level buffer against external shocks , mitigating the adverse survival impacts of systemic economic volatility by roughly 17.4%.

Policymakers in emerging economies should prioritize judicial accelerations specifically through dedicated digital commercial small-claims tribunals over mere business registration simplifications. In addition, implementing statutory "silent consent" administrative clearance protocols and accessible small-enterprise restructuring frameworks will shield productive entrepreneurial ventures from non-market mortality.

The paper bridges Douglass North's New Institutional Economics with Oliver Williamson's Transaction Cost Economics, challenging standard passive-learning survival models by demonstrating that startup exit in emerging markets frequently reflects institutional failure rather than microeconomic inefficiency.