The implementation of pro-market institutions – policies that support market relationships in the economy – have proliferated since the late 1980s. Socialist economies in Eastern Europe, the Soviet Union, and other countries like China and Vietnam transitioned to capitalism. Countries in Latin America, South Asia, and Africa moved away from import substitution and liberalized their economies. Advanced economies also deregulated industries and privatized firms (for an overview of all these changes, see Yergin & Stanislaw, 1998). Received wisdom in country-level research has been that these pro-market institutions have been beneficial for countries (e.g., Babetskii & Campos, 2007; Campos & Horvath, 2012a, b; Merlevede, 2003; Sahay & Goyal, 2006). However, firm-level research has disagreed over the effect of pro-market institutions on firm performance. Some have proposed that pro-market institutions improve firm performance (e.g., Banalieva, Eddleston, & Zellweger, 2015; Chacar, Newburry, & Vissa, 2010; Cuervo-Cazurra & Dau, 2009a; Kim, Kim, & Hoskisson, 2010; Majumdar & Bhattacharjee, 2014; Park, Li, & Tse, 2006), while others have argued the reverse (e.g., Chacar et al., 2010; Chari & David, 2012). Some researchers have underlined that not all pro-market institutions that are typically considered ‘‘good’’ for countries are equally beneficial for companies (e.g., Bhaumik & Dimova, 2014). We offer one solution to this disagreement in the literature by arguing that these pro-market institutions have asymmetric dynamic effects on firm performance. We do so by integrating institutional economics and its analysis of institutional arrangements and transaction costs (Coase, 1937; Meyer, Estrin, Bhaumik, & Peng, 2009; Meyer & Peng, 2016; North, 1990, 1992; Peng, Wang, & Jiang, 2008; Williamson, 1975, 1990), with signaling theory and its study of how economic agents interpret changes in institutions (Connelly, Certo, Ireland, & Reutzel, 2011; Huang, 2013; Spence, 1973; Walsh, 2007). Specifically, we present three ideas. First, we propose four distinct pro-market institutional dynamics. We distinguish pro-market reforms (improvement in pro-market institutions over time) from reversals (deterioration in pro-market institutions over time). We further differentiate between intensifying (continuing at an increasing pace over time) and fading (continuing, but at a decreasing pace over time) reforms and reversals. These distinctions are vital because reforms and reversals are not just a mirror image of each other; we propose that the varying conditions affect firm performance through different mechanisms.