Three essays on firm performance constraints: Empirical evidence from European and Central Asia countries

This study examines the main performance constraints faced by enterprises in Europe and Central Asia. The research consists of three separate essays, each addressing specific research questions, and uses different methodologies, including descriptive statistics, ordinal regression, and Bayesian analysis, tailored to the unique nature and objectives of each essay. The study identifies five key barriers to business performance: Tax rates, financial resource access, skilled labor availability, unregistered firm competition, and political instability. This dissertation departs from previous studies and contributes to the existing academic literature in several ways. Firstly, it introduces evaluating firm performance via fixed asset acquisition or long-term investments, diverging from traditional indicators like sales, employment, and profitability. In addition, the study introduces previously overlooked constructs such as tax bribery, regulatory complexity, and the frequency of inspections by tax authorities, which provide valuable insights into why firms perceive tax rates as a major impediment to their performance. Second, from an econometric perspective, previous research on the determinants of performance at the micro level has typically used traditional binary and ordinal models. Ordinal models, however, assume that the effect of each independent variable on the probability of each outcome level is proportional, which is known as the proportional odds or parallel lines assumption. This assumption is often challenging to meet, and its violation can impact estimate robustness. The study discovered a breach in the proportional odds assumption yet found only minor differences in the model predictions as a result. While the determinants of firm performance have been studied from a frequentist statistical or econometric perspective, criticism has arisen about the limited quantification of uncertainty in the estimates. In contrast, this study uses the Bayesian approach, which is more flexible and provides more reliable estimates of the predictions. Keywords: Bayesian approach, Capacity Utilization, Credit Constraint, Financial Obstacle, Fixed Assets, SMEs.