Reumo
This study examines the impact of economic and institutional factors, particularly instability and uncertainty, on the adoption of vertical integration by firms in emerging and developing countries Employing a descriptive and quantitative research design with panel data analysis of publicly traded firms across 75 countries, the study utilizes financial indicators from Capital IQ, along with macroeconomic variables such as GDP per capita and the World Uncertainty Index Fixed effects econometric models reveal that internal operational factors, notably revenue and operating cash flow, have greater statistical significance in explaining vertical integration decisions compared to aggregate measures of economic and political uncertainty, which show limited explanatory power, possibly due to data aggregation and sectoral heterogeneity These findings partially challenge the Transaction Cost Economics premise that greater uncertainty induces vertical integration, suggesting that firms prioritize internal capabilities over external institutional pressures, aligning with theories of voluntarist strategic response The study contributes to the literature by highlighting the predominance of endogenous financial justifications over exogenous uncertainty in the formation of organizational structure in fragile institutional contexts In practical terms, it alerts policymakers that institutional strengthening may not produce immediate organizational changes, since companies' verticalization strategies may mask vulnerabilities rooted in institutional misalignment.
Abstract
This study examines the impact of economic and institutional factors, particularly instability and uncertainty, on the adoption of vertical integration by firms in emerging and developing countries. Employing a descriptive and quantitative research design with panel data analysis of publicly traded firms across 75 countries, the study utilizes financial indicators from Capital IQ, along with macroeconomic variables such as GDP per capita and the World Uncertainty Index. Fixed effects econometric models reveal that internal operational factors, notably revenue and operating cash flow, have greater statistical significance in explaining vertical integration decisions compared to aggregate measures of economic and political uncertainty, which show limited explanatory power, possibly due to data aggregation and sectoral heterogeneity. These findings partially challenge the Transaction Cost Economics premise that greater uncertainty induces vertical integration, suggesting that firms prioritize internal capabilities over external institutional pressures, aligning with theories of voluntarist strategic response. The study contributes to the literature by highlighting the predominance of endogenous financial justifications over exogenous uncertainty in the formation of organizational structure in fragile institutional contexts. In practical terms, it alerts policymakers that institutional strengthening may not produce immediate organizational changes, since companies' verticalization strategies may mask vulnerabilities rooted in institutional misalignment.