Influence of institutional economics on firm birth and death : a comparative analysis of hospitality and other industries

Abstract

This paper investigates how public policies, such as taxes and regulations influence firm formation (birth) and closure (death) in the hospitality and other industries in the United States (US), using an institutional economics approach and the dimensions of the Economic Freedom of North America (EFNA) index. The literature has been scant when it comes to examining the effects of policies of formal institutions on firms’ birth and death in the hospitality industry, and whether these effects in hospitality differ from those of other sectors. The study uses panel data from government sources and the EFNA dimensions and applies cross-sectional dependence and unit root tests, followed by a panel generalized least square approach for the analysis. Our findings show that components of economic freedom have varying effects on firms’ birth and death. The study provides practical contributions for policymakers and managers by improving the understanding of firm births and deaths in the US.