Although the determinants of firm performance in developed countries have been studied extensively in the international business literature, recent work has emphasized the theoretical value of studying emerging countries (Chari & David, 2012; Wright et al., 2005), particularly transition economies in Central and Eastern Europe (CEE) (Meyer & Peng, 2005; Shinkle & Kriauciunas, 2010). Reforms in CEE economies have involved a switch from a socialist to a market-based system (Danis, Chiaburu, & Lyles, 2010; Estrin, Poukliakova, & Shapiro, 2009). Because these reforms occur at different paces across countries, CEE economies provide contextual variations that are ideal for understanding the determinants of firm performance.

In attempting to complement resource-based explanations (Buckley, Elia, & Kafouros, 2014) and conceptualize how the context affects firm performance, extant research has recently focused on institutions (Chan, Isobe, & Makino, 2008; Makino, Isobe, & Chan, 2004; Meyer, Estrin, Bhaumik, & Peng, 2009; Meyer & Peng, 2005; Peng, Wang, & Jiang, 2008; Sun, Peng, Lee, & Tan, 2015; Wright et al., 2005). Institutions are characterized by regulative, normative, cultural and cognitive features (Scott, 1995) that create coercive, normative and mimetic pressures. These pressures shape firm behavior and performance (Scott, 1995), influence managerial conduct (Oliver, 1997) and define the rules of the game (North, 1990). It is theoretically accepted that a more developed institutional environment is advantageous for firms because it reduces transaction costs and increases contract enforcement (Chari & Banalieva, 2015; Meyer & Peng, 2005; North, 1990; Peng, 2004; Peng et al., 2008; Williamson, 2000).

However, empirical evidence concerning the effects of institutional development is conflicting. Whereas some studies find that institutional development improves firm performance (Ngobo & Fouda, 2012), others find negative performance consequences (Chan et al., 2008) or a U-shaped relationship between institutional development and firm profitability (Chari & Banalieva, 2015). Although these empirical findings appear to contradict the notion that institutional development is good and desirable, they actually support the key theoretical prediction that institutional changes lead to rent redistribution and, therefore, to winners and losers (North, 1990). Hence, although CEE countries experience significant institutional transformations that vary in their degree and pace, it is unclear what are the institutional drivers that distinguish more successful firms from less successful ones in the context of CEE economies.