International Evidence on Economic Freedom, Governance, and Firm Performance

Abstract

Abstract The literature has documented evidence that economic freedom is positively associated with economic growth, investment spending, income equality, employment, gender equality, etc. Economic freedom is also found to be associated with a country’s rule of law and legal regime. There is, however, little studies examining how economic freedom affects a firm’s performance such as firm valuation and profitability. The evidence presented in this study shows that economic freedom strengthens a firm’s valuation and profitability. Additionally, firms headquartered in emerging markets or younger firms from countries with higher levels of economic freedom experience higher valuation and profitability. That is, economic freedom is more beneficial for firms from emerging markets and is crucial to the success of early-stage firms.