Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

Gadjah Mada International Journal of Business
Vol. 20, No. 3 (Sept.-Dec. 2018): 259-276

Determinants of Labor Productivity in Emerging Markets:
Evidence from Pre- and Post-Financial Crisis Mexico
Young-Hee Kang, and Kyunga Na*
Keimyung Univerity, Republic of Korea
Abstract: Although the global financial crisis of 2008 had tremendous effects on global businesses, its
impact on firm performance in emerging markets is unknown. To develop this knowledge, this study
explores the factors that influenced labor productivity in emerging markets before and after the crisis.
Using a sample of 2,061 Mexican firms that were collected by the World Bank in 2006 and 2010, this
study investigates the relationships of bribery, informality, and corporate governance to labor productivity. The results show that, before the crisis, informality and foreign ownership were positively associated
with labor productivity. On the other hand, after the crisis, bribery and informality are negatively related
to labor productivity, while foreign ownership and external auditing make positive impacts on labor
productivity. The findings imply that businesses need to improve the quality of their corporate governance and decrease bribery. Governments of emerging markets need to reduce the levels of informality.

Keywords: bribery; corporate covernance; emerging markets; global financial crisis;
labor productivity
JEL classification: E26, F65, G34

* Corresponding author’s e-mail: kyunga@gw.kmu.ac.kr
ISSN: 1141-1128
http://journal.ugm.ac.id/gamaijb

259

Kang and Na

Introduction
The global financial crisis of 2008 represents the worst financial crisis since the
Great Depression of the 1930s (Neaime
2012), leading to global economic recession
(Dal Bianco et al. 2017). The crisis has influenced the global economy and businesses in
a variety of ways (Campello et al. 2010). For
example, the US, as well as European and
Asian countries, have suffered from depression for a while, which has constrained global businesses (Neaime 2012). In addition,
the financial crisis is likely to increase the
uncertainty of business environments, thus
influencing business strategies and performance. Given that the crisis limited businesses in their activities, global businesses are
now more constrained after the 2008 financial crisis than they were before the crisis
(Campello et al. 2010). In particular, the global crisis greatly impacted transition economies, which have less-developed financial
markets (Neaime 2012). Compared to developed economies, transition economies are
more likely to have difficulties in accessing
or obtaining financing (Alaimo et al. 2009).
This implies that the global financial crisis
of 2008 may have had more significant impacts on firm activities or performance in
emerging markets. Moreover, as emerging
markets are characterized by high levels of
uncertainty, the 2008 financial crisis has contributed to increasing business risk.
Despite the tremendous effects of the
financial crisis on emerging markets, much is
unknown about the effects of financial constraints on businesses in emerging markets,
because previous empirical research on financial constraints has focused on data from US
public companies (Compello et al. 2010).
Thus, the current study explores the impacts
of the global financial crisis on emerging
260

markets. Using a sample of Mexican companies, this research compares factors that influenced labor productivity in the pre- and
post-financial crisis periods.
Among such factors are corporate bribery, informality, and weak corporate governance; these factors are regarded as major
features of emerging markets (e.g., Mitton
2002; Cuervo-Cazurra 2006; Alaimo et al.
2009; Chen et al. 2009; Baik et al. 2015).
Some of the scholars that have attempted to
identify the determinants of labor productivity in emerging markets pay attention to these
factors (e.g., Mitton 2002; Kang and Chung
2015). In emerging markets, financial markets and institutions are less developed
(Alaimo et al. 2009); corruption is relatively
severe (Schneider 2005; Cuervo-Cazurra
2006; Sanchez et al. 2008: 341); and the ratio of informal sectors to the national
economy is relatively high (González and
Lamanna 2007; Alaimo et al. 2009; Baik et
al. 2015). As the 2008 financial crisis increased uncertainty and risk, the effects of
the three factors on labor productivity may
differ before and after the crisis. For example,
the impact of the quality of governance on
firm productivity may be bigger before the
crisis. As businesses had more financial constraints directly after the crisis, weak corporate governance may have provided more
negative signals to potential investors or customers before the crisis. On the other hand,
firms with a good governance quality may
have achieved better performance by proving their trustworthiness or gaining a good
reputation from the markets.
There are several reasons for choosing
the Mexican case to answer the study’s research question. First, Mexico has been regarded as a fast-growing market in Latin
America, because it has shown low labor
costs, stable foreign exchange rates, a rela-

Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

tively high economy growth rate, and so on
(Kwon et al. 2014). Second, Mexico is part
of the North American economic zone,
which includes the US and Canada. The global financial crisis of 2008 was triggered by
a crisis in the subprime mortgage market in
the US in 2007. The Mexican economy is
greatly influenced by the US economy. According to Dooley and Hutchison (2009),
Mexico had close economic and financial relations with the US, and the relations were
stronger just after the financial crisis. Finally,
Mexico has many of the important institutional features of emerging markets, such as
high levels of corruption (e.g., TI2011; Kang
and Chung 2015), informality (e.g., González
and Lamanna2007; Alaimo et al. 2009; Kang
and Chung 2015), low infrastructure (Kwon
et al. 2014), and so on.
This study has several implications.
First, the findings of this research contribute
to the literature on the effects of the global
financial crisis on business productivity, by
investigating the factors that influenced labor productivity after the crisis. In addition,
this study contributes to the understanding
of firm productivity in emerging markets by
exploring the determinants of labor productivity before and after the crisis. Next, this
study has useful implications for practitioners.
For example, the findings suggest ideas for
policy makers or governments of emerging
markets to improve firm productivity. Further, this research will help businesses to develop managerial practices or business strategies by providing evidence to enhance firm
performance.
This paper is organized as follows. In
the next section, the theoretical background
of the study is discussed. This is followed by
the research methodology, analysis techniques, and results. The concluding section
discusses the implications of the findings

from the study, and suggests directions for
further research.

Literature Review
The Financial Crisis and Bribery
Effects
Bribery, called grease money, is a representative type of corruption (Lee and Weng
2013). The majority of bribery by firms is
associated with government officials, since
firms aim to obtain resources that are mainly
controlled by the government (Luo 2005).
Although bribery is common across many
countries, it has been regarded as a critical
feature of less developed economies or institutions (Rodriguez et al. 2005; CuervoCazurra 2006). However, the literature on
corruption or bribery has provided inconsistent results on the effect of corruption on
firm performance. Some studies assert that
firms bribing government officials has a positive effect on firm performance (e.g., Lee and
Weng 2013), while others claim that firm corruption is negatively related to firm performance (e.g., Kaufmann and Wei 1999; Wei
2000; Padgett and Morris 2005).
A financial crisis makes the business
environment more uncertain and constrained.
In order to obtain preferential treatment,
bribes are paid to bribees such as government
officials. This means that bribery may be
costly for companies, and may affect firm
performance. As business activities are constrained by the global financial crisis, the effects of bribery on firm performance may be
different from before the crisis. For instance,
firm bribery may be positively related to firm
performance, in that bribery may make businesses offering bribes more likely to access
resources that grant competitive advantages
than their non-bribing counterparts. On the
261

Kang and Na

other hand, firm bribery may have negative
effects on firm performance after the financial crisis. Paying bribes to officials may deteriorate organizational efficiency (Kaufman
and Wei 1999), and firm bribery has negative
impacts on employees’ attitudes towards their
leaders or organizations (Johnson and
O’Leary-Kelly 2003). This suggests that, after the financial crisis, firm bribery may have
had negative effects on labor productivity in
emerging markets.

The Financial Crisis and
Informality Effects
Informality plays a critical role in emerging economies, because such economies are
likely to have a large number of unregistered
businesses and significant employment in the
informal sectors (Schneider and Enste 2000;
Alaimo et al. 2009). There are different definitions of informality among scholars (Kang
and Chung 2015). In this study, informality
is related to unregistered businesses that are
less likely to be monitored by the regulatory
authority (e.g., González and Lamanna 2007;
Amin 2011); while competition with informal rivals is relevant to firm level performance (Baik et al. 2015). More precisely, informality is defined as competition with unregistered rivals (González and Lamanna
2007; Amin 2011; Kang and Chung 2015).
High levels of informality mean that
unregistered firms form a large part of an
economy (Gonzalez and Lamanna 2007;
Amin 2011). Djankov et al.’s (2005) findings
imply that emerging markets tend to have
larger informal economies, because regulatory
burdens are positively associated with firm
entry costs (Levie and Autio 2011). Firms in
the informal sector can benefit from low costs
because they are less concerned with paying
taxes and following regulations or laws (Baik

262

et al. 2015). It is likely that companies in the
formal sector that compete with unregistered
rivals are more prone to suffer from such disadvantages than their counterparts. The business risk increased more after the crisis than
before (Campello et al. 2010), and the business environment of transition economies has
deteriorated more since the crisis than those
of developed economies (Neaime 2012).
This implies that having unregistered competitors should be negatively associated with
organizational performance in emerging markets, where regulatory burdens are relatively
high. In addition, some studies provide evidence that competition with firms in the informal sector has negative effects on firm
performance (e.g., Kang and Chung 2015).

The Financial Crisis and
Corporate Governance Effects
Some studies address the critical role of
corporate governance in firm value, in emerging markets (e.g., La Porta et al. 2000; Mitton
2002). Specifically, corporate governance influenced the firm value of East Asian transition economies during the financial crisis of
1997 (Johnson et al. 2000). According to
Mitton (2002), corporate governance played
a critical role in firm performance in Indonesia, South Korea, Malaysia, the Philippines,
and Thailand during the 1997 East Asian financial crisis. In particular, Mitton (2002)
focuses on the relations of disclosure quality, ownership structure, and corporate diversification among the elements that indicate
corporate governance. From these, disclosure
quality and ownership structure were chosen
as indicators of corporate governance, because emerging markets are likely to be managed by large controlling shareholders, and
to have a low disclosure quality (Chen et al.
2009).

Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

Some studies consider an external audit as a proxy of the disclosure quality, because it implies the credibility of a firm’s financial reports (e.g., Mitton 2002; Barako et
al. 2006). This study employs the external
audit as an indicator of corporate governance,
because it is more likely to increase the transparency of a company’s financial statements
than an internal audit will. As emerging markets have relatively weak financial regulations
or institutions, external audits may be more
likely to increase the perceived disclosure
quality, even though the actual disclosure
quality is not high. Further, this research uses
the rate of foreign ownership as another indicator of corporate ownership. Foreign
shareholders may engage in monitoring managerial decisions, rather than obtaining corporate governance in transition economies
(Chen et al. 2009). Some studies report that
a large foreign shareholding may have positive effects on firm performance, by preventing top management from engaging in opportunistic behavior in emerging markets (e.g.,
Chen et al. 2009).
Considering all things, corporate
governance’s quality may have a positive relationship with firm performance in the preand post-financial crisis periods. However, this
relationship may be more obvious after the
crisis than before the crisis. The financial crisis made it more difficult for businesses to
obtain financial resources than before the crisis, because it increased the uncertainty of
the business environment. The financial crisis increased investors’ fears and shrank the
financial markets, which in turn led to their
economic downfall. Businesses with good
corporate governance are likely to have a
good reputation, which may contribute to
firm performance during the crisis.

Methods
Data Collection
Mexican samples from the World Bank
Enterprise Survey (WBES) dataset were used
to determine which of the factors that affect
labor productivity differ before and after the
2008 financial crisis. Since the early 2000s,
the World Bank has surveyed businesses in
transition economies, thus providing a variety of information about business environments (financing, corruption, infrastructure,
etc.) and firm performance measures.1 In
terms of Mexico, the World Bank has performed three rounds of surveys, in 2002,
2006, and 2010, respectively. For the purpose
of this study, data from 2006 and 2010 were
used, because the 2002 data is less relevant
to the global financial crisis.

Sampling
Sample companies were selected from
the Mexican data of the WBES in two steps:
1) The businesses which have participated in
the survey in 2006 or 2010 were included in
the sample and; 2) observations with missing values for the current study were excluded.
Using these criteria, a total of 2,061 firms
were obtained. The features of the overall
sample are presented in Table 1. Of the overall sample, 54.73 percent (1,128) companies
have been surveyed in 2006 and 45.26 percent (933) in 2010, respectively. In terms of
their industries, 54.2 percent (1,117) of the
firms are in manufacturing and other, 29.94
percent (617) in service, 10.67 percent (220)
in construction, and 5.19 percent (107) in
wholesale & retail. The sample has 38.86
percent (801) micro-small firms (no more
than 20 employees), 31.49 percent (649)

A detailed description on the WBES and related data are available at http://www.enterprisesurveys.org.

1

263

264
611
407
1,939
189
21.49 (SD = 16.73)
164.95 (SD = 649.32)

Firm Size_LG (100+ employees)

Subsidiary of large firms

Market (domestic)

Listed on stock exchange

Ave. Firm age (yrs.)

Ave. Firm size (employees)

9.17%

94.08%

19.75%

29.65%

31.49%

38.86%

54.20%

649

1,117

Manufacturing & other

29.94%

Firm Size_ME (20<employees ≤ 99)

617

Service

10.67%

801

220

Construction

5.19%

%

Firm Size_SM (employees ≤ 20)

107

Frequency

Total Sample

Industry Whole sales & Retails

Category

Table 1. Characteristics of the Sample

6.74%

94.86%

14.01%

18.97%

29.61%

51.42%

53.28%

30.41%

11.08%

5.23%

%

96.17 (SD = 335.36)

18.32 (SD = 14.48)

76

1,070

158

214

334

580

601

343

125

59

Frequency

Pre-Financial Crisis (2006)

12.11%

93.14%

26.69%

42.55%

33.76%

23.69%

55.31%

29.37%

10.18%

5.14%

%

248.10 (SD = 885.01)

25.32 (SD = 18.39)

113

869

249

397

315

221

516

274

95

48

Frequency

Post-Financial Crisis (2010)

Kang and Na

Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

medium firms (20 ≤ employees ≤ 99), and
29.65 percent (611) large firms (100+ employees), respectively. The average firm age
is 21.49 (SD = 16.73) years.

Estimations and Measures
For the purpose of this research, Equation (1) was constructed, where the dependent variable is Labor Productivity, proxied by
the natural logarithm of sales per employee;
the test variable is Bribery, proxied by an indicator variable which is one if a firm is involved in any kind of informal gift or payment, and zero otherwise. Informality is
proxied by an indicator variable which is one
if a firm competes with informal (or unregistered) firms, and zero otherwise; OWN_ Foreign is proxied by an indicator variable that
represents the percentage owned by foreign
individuals, companies or organizations; and
External Audit represents a test variable that
is one if an external auditor audited a firm’s
financial statements, and zero otherwise.
Equation (1) was calculated based on
two subsamples divided by the incidence of
the global financial crisis in 2008: fiscal year
2006 as the period before the financial crisis
(hereinafter pre-financial crisis), and fiscal
year 2010 as the period after the financial
crisis (hereinafter post-financial crisis). Then,
the coefficients of the test variables were
compared. For example, Bribery (b1) from each
regression is used to examine the difference
in coefficients of Bribery between the pre-financial crisis and the post-financial crisis.
Given that bribery can reduce labor productivity, the coefficient estimate on the test
variable Bribery is expected to be negative in
both periods. However, the magnitudes may
be different. If b1 from the pre-financial crisis
is less than b1 from the post-financial crisis,
bribery by a firm has harmed labor produc-

tivity more in the period before the financial
crisis, and vice versa. Likewise, Informality (b2),
OWN_Foreign (b3), and External Audit (b4)
from each regression are compared to examine the difference in coefficients on these test
variables between the pre- and post-financial
crisis.
α +β1Bribery+β2Informality
Labor
Productivity = +β3OWN_Foreign+β4 External
audit + β5 AGE + β6 Size_SM
+ β7 Size_ME+ β8 SUB
+ β9 EXPORT + β10Ext_FIN
+ β11TAX_INSPECT + β12 LIST
+ β13 MKT + β14IND_WR
+ β15IND_CONST
+ β16IND_SERVICE
+ β17Post period + ε
......................................(1)

where,
Labor productivity= Natural logarithm of sales
per employee.
Bribery =
One if a firm is involved
in any kind of informal
gift or payment, and zero
otherwise.
Informality =
One if a firm competes
with informal (or unregistered) firms, and zero otherwise.
OWN_Foreign = Percent owned by foreign
domestic individuals,
companies, or organizations.
External audit = One if a firm’s financial
statements were audited
by an external auditor, and
zero otherwise.
AGE =
Natural logarithm of firm
age.

265

Kang and Na

SIZE_SM =

One if the total number
of employees is less than
21, and zero otherwise.

SIZE_ME =

One if the total number
of employees falls between 21 and 99, and zero
otherwise.

SUB =

One if a firm is part of a
large firm, and zero otherwise.

EXPORT =

percent of export from
sales.

EXT_FIN =

percent of external financing.

TAX_INSPECT =One if the firm has a tax
inspection, and zero otherwise.
LIST =

One if a firm is publicly
listed and zero otherwise.

MKT =

One if the main market is
a domestic market, and
zero otherwise.

IND_WR =

One if a firm belongs to
the wholesale or retail industry, and zero otherwise.

IND_CONST = One if a firm belongs to
construction industry, and
zero otherwise.
IND_SERVICE =One if a firm belongs to
service industry, and zero
otherwise, and
Post period =

One if a firm belongs to
the sample of 2010, and
zero otherwise.

Equation (1) also includes several control variables which may affect labor productivity, such as firm age, firm size, status of

266

organization (subsidiary vs. independent
firm), percentage of exports from sales, percentage of external financing in the total financed amount, status of tax inspection, listing status (listed firms vs. unlisted firms), the
main market (domestic and international
market), and industry.

Results
Table 2 summarizes the descriptive statistics of the variables, and Table 3 outlines
the correlations between the variables. As
seen in Table 3, bribery and informal competition are negatively related to labor productivity in the post-financial crisis (p < 0.001),
whereas the relationship is unclear in the prefinancial crisis. On the other hand, external
audit is positively associated with the labor
productivity of both the pre- and post-crisis
periods (p < 0.01).
The results of the Ordinary Least Square
(OLS) models are presented in Table 4. In
terms of the pre-financial crisis, bribery is
negatively correlated with labor productivity,
which is non-significant. In addition, informality is positively associated with labor productivity before the crisis, β= 0.30, p < 0.05.
Foreign ownership is also positively related
to labor productivity, β = 0.50, p < 0.01. On
the other hand, external audit has non-significant effects on labor productivity.
However, bribery has a significant negative correlation with labor productivity after
the financial crisis, with β = -0.42, p < 0.01.
Informality is negatively related to labor productivity, β = -0.23, p < 0.01. Foreign ownership is positively related to labor productivity, β = 0.67, p < 0.001. Further, external
audit has positive effects on labor productivity, β = 0.41, p < 0.001.

Labor productivity

Bribery

Informality

OWN_Foreign

External audit

AGE

Size_SM

Size_ME

SUB

EXPORT

EXT_FIN

TAX_INSPECT

LIST

MKT

IND_WR

IND_CONST

IND_SERVICE

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

Variable

1.

No.

Table 2. Descriptive Statistics

0.30

0.11

0.05

0.94

0.09

0.41

0.29

0.08

0.20

0.31

0.39

2.85

0.46

0.07

0.32

0.05

12.61

Mean

0.46

0.31

0.22

0.24

0.29

0.49

0.36

0.20

0.40

0.46

0.49

0.76

0.50

0.24

0.47

0.21

1.21

Std. Dev

Total Sample (N=2,061)

0.30

0.11

0.05

0.95

0.07

0.34

0.21

0.05

0.14

0.30

0.51

2.71

0.28

0.06

0.07

0.05

12.23

Mean

0.46

0.31

0.22

0.22

0.25

0.47

0.30

0.18

0.35

0.46

0.50

0.71

0.45

0.21

0.25

0.21

1.17

Std. Dev

Pre-Financial Crisis (N=1,128)

0.29

0.10

0.05

0.93

0.12

0.49

0.40

0.10

0.27

0.34

0.24

3.01

0.68

0.09

0.62

0.05

13.06

Mean

0.46

0.30

0.22

0.25

0.33

0.50

0.39

0.22

0.44

0.47

0.43

0.78

0.47

0.27

0.48

0.21

1.10

Std. Dev

Post-Financial Crisis (N=933)

Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

267

268

Bribery

Informality

OWN_Foreign

External audit

AGE

Size_SM

Size_ME

SUB

EXPORT

EXT_FIN

TAX_INSPECT

LIST

MKT

IND_WR

IND_CONST

IND_SERVICE

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

0.00

-0.02

-0.11**

-0.15***

0.00

0.10 **

0.03

0.02

0.08*

0.04

0.04

0.11**

0.01

-0.02

-0.19

-0.04

0.17
***

-0.07

-0.03

0.07
*

*

0.09 *

-0.05

-0.08*

-0.10**

0.21***

0.04

0.13
***

0.20 ***

-0.05

-0.50***

0.22 ***

1.00

0.08 *

-0.02

0.03

0.10 **

5

-0.03

0.03

-0.25***

0.02

0.03

-0.02

0.31
***

0.23***

-0.06†

-0.17***

-0.02

0.17***

1.00

0.00

0.06*

0.13***

4

0.09 *

-0.08*

0.16***

0.07 *

0.01

-0.05

***

-0.01

0.05

0.05

0.00

-0.07*

-0.17***

1.00

0.01 *

0.06†

3

-0.02

0.04

0.03

0.00

-0.07*

-0.04

0.08*

1.00

-0.02

2

0.18***

-0.06†

-0.24***

0.14***

0.30***

0.26***

-0.16***

-0.12***

1.00

1

-0.02

0.13***

-0.11***

0.03

-0.11***

0.06†

0.07*

0.01

0.04

-0.04

-0.25***

1.00

0.10***

0.11***

-0.09**

0.04

0.16***

6

0.03

-0.09*

0.04

0.11***

0.10 **

-0.24***

-0.05

-0.18

***

-0.22***

-0.40***

1.00

-0.27***

-0.21***

-0.19***

0.08*

-0.01

-0.11***

7

0.04

0.01

0.03

0.06†

-0.04

-0.02

0.06†

-0.08

*

-0.10**

1.00

-0.67***

0.09 **

0.07 *

0.02

-0.03

-0.03

0.04

8

0.04

0.03

0.00

0.01

0.11***

0.14***

-0.04

-0.01

1.00

0.03

-0.18***

0.06†

0.21***

0.23***

0.06†

0.03

0.14***

9

Notes:
Table 3 reports the Pearson correlation between the main variables. The results for the pre-financial crisis period appear above the diagonal and those for
the post-financial crisis period appear below the diagonal. †, *, **, and *** indicate significance at the 10 percent, 5 percent, 1 percent, and 0.1 percent,
respectively.

Labor productivity

1.

No. Variable

Table 3. Correlation Matrix

Kang and Na

Bribery

Informality

OWN_Foreign

External audit

AGE

Size_SM

Size_ME

SUB

EXPORT

EXT_FIN

TAX_INSPECT

LIST

MKT

IND_WR

IND_CONST

IND_SERVICE

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

0.01

-0.05

-0.04

-0.02

0.02

0.08*

-0.04

-0.07*

0.01

1.00

0.02
-0.13***

-0.03

1.00

0.18***

0.10**

0.02

0.00

0.04

1.00

0.09
**

-0.08
*

0.12***

0.27
***

***

0.03

0.06†

0.04

1.00

-0.07*

-0.10

-0.15***

-0.08*

1.00

0.02

0.00

0.05

0.01

0.07
*

-0.02

-0.01

0.00

0.00

0.03

-0.01

-0.02

-0.06*

0.00

0.00

15

-0.67***

-0.16
***

0.03

0.08
*

0.15***

-0.02

-0.14
***

-0.25***

0.00

-0.16***

0.05†

0.07
*

0.20***

0.00

-0.14
***

-0.06***

14

*

-0.22***

1.00

-0.08

0.03

-0.04

-0.04

-0.02

-0.01

-0.02

-0.09

**

0.11***

-0.01

0.00

-0.02

0.02

-0.03

0.04

16

1.00

-0.23***

-0.16***

0.06†

0.07*

-0.04

0.02

-0.03

0.01

-0.02

0.01

-0.04

0.03

0.00

0.02

0.00

-0.03

17

Notes:
Table 3 reports the Pearson correlation between the main variables. The results for the pre-financial crisis period appear above the diagonal
and those for the post-financial crisis period appear below the diagonal. †, *, **, and *** indicate significance at the 10 percent, 5 percent, 1
percent, and 0.1 percent, respectively.

-0.08*

-0.09*

-0.06†

-0.73***

-0.08*

0.13
***

0.05

1.00

-0.06*

0.12

-0.03

0.15

*

***

0.07

0.03

***

0.03

-0.04

-0.21***
-0.24***

0.14

0.05†

-0.06
***

0.23

0.04
*

***

***

0.16

0.16***

0.00

-0.01

0.02

0.05

0.00

0.09

0.07 *

0.13***

-0.09**
**

13

12

11

0.35***

-0.06*

0.16

0.04

Labor productivity

1.
***

10

No. Variable

Table 3. Continued

Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

269

Kang and Na

Table 4. Regression Result for Labor Productivity (Ordinary Least Squares, OLS)
Variable

Total
(N=2,061)

Pre-Financial Crisis
( N =1,128)

Post-Financial Crisis
(N=933)

Intercept

11.90 ***

11.75***

12.85***

Bribery

-0.40***

-0.21

-0.42**

Informality

0.24***

0.30 *

-0.23**

OWN_Foreign

0.67***

0.50**

0.67 ***

External audit

0.39***

0.13

0.41 ***

Age
Firm size dummy

0.17***

0.20***

0.11 *

Size_SM

-0.23**

-0.05

-0.25*

Size_ME

-0.12†

0.02

-0.11

SUB

0.23***

0.27 *

0.19 *

EXPORT

0.00

-0.38

0.04

EXT_FIN

0.04

-0.30

**

0.02

TAX_INSPECT

0.10†

0.18 *

0.02

LIST

0.12

0.08

0.13

MKT
Sector dummy
(Manufacturing)

-0.20

-0.23

-0.23

IND_WR

-0.16

0.01

-0.46**

IND_CONST

-0.01

0.17

-0.14

IND_SERVICE

-0.05

-0.03

0.00

Adj. R

2

16.31%

6.04%

17.88%

F Value

24.61 ***

5.26***

12.94***

VIF

2.22
(Size_SM)

2.38
(Size_SM)

2.39
(EXPORT)

Notes: † p < 0.10; * p < .05; ** p < 0.01; *** p < 0.001.

Robustness Check
In order to obtain robustness, we conduct additional analyses using the panel data
of 745 firms which participated in both the
2006 and 2010 surveys. It is an appropriate
way to test the effects of the variables of in270

terest on labor productivity, in that the panel
data can contribute to controlling for the firm
effect on the outcome variables. Table 5 summarizes the sensitivity’s test results. The total sample size of the panel data is 1,490
observations, which is smaller than the original sample (2,061 observations). The coeffi-

Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

Table 5. Sensitivity Test Result (OLS): Panel Data
Total
(N= 1 ,490)

Pre-Financial Crisis
(N= 745)

Post-Financial Crisis
(N= 745)

Intercept

11.93***

12.02***

12.86***

Bribery

-0.51***

-0.27

-0.46*

Informality

0.16***

0.14

-0.25**

OW N_Foreign

0.01

0.46*

0.55***

External audit

0.41***

0.13

0.44***

Age

0.14***

0.15*

0.11*

Firm size dummy
Size_SM
Size_ME

-0.27**
-0.13

-0.25*
-0.13

-0.18
-0.06

SU B

0.20***

0.19

0.21*

EXPORT

0.24

-0.48

0.24

0.08

-0.28

*

0.00

TAX_INSPEC T

0.08

0.20

*

-0.01

LIST

0.15

0.29†

0.04

MKT
Sector dummy
(Manufacturing)

0.02

-0.08

-0.14

IND_WR

-0.16

0.14

-0.56**

IND_C ONST

-0.04

0.29*

-0.27*

IND_SERVICE

0.01

0.02

0.04

2

16.29%

6.38%

16.43%

F Value

16.85

***

***

9.60***

VIF

2.32

2.30

2.67

(EXPORT)

(Size_SM)

(EXPORT)

Variable

EXT_FIN

A dj. R

3.98

Notes: † p < 0.10; * p < .05; ** p < 0.01; *** p < 0.001.

cients for some variables and F values from
the panel data are a little smaller than those
from the original sample. Also, the variable
Informality becomes insignificant in the prefinancial crisis of the panel data, β1= 0.14,

ns while it is significant in the original sample,
β1= 0.30, p < 0.05. In general, the results of
the robustness check test are similar to the
main results in Table 4, providing further support for the results of this study.

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Kang and Na

Discussion
The impact of the global financial crisis —an unexpected event— on firm productivity in emerging markets was examined. This
research aimed to compare the effect of the
2008 global financial crisis on firm performance in emerging economies. In particular,
using a sample of Mexican businesses collected from the World Bank Enterprise Survey dataset, a comparison of the factors that
affect labor productivity in emerging markets
in the pre- and post-financial crisis periods
was made.
The results suggest that bribery had
non-significant effects on labor productivity
before the crisis, while it has a significant
negative correlation with labor productivity
after the financial crisis. Informal competition was positively associated with labor productivity before the crisis, while it is negatively related to labor productivity after the
crisis. On the other hand, foreign ownership
is positively related to labor productivity before and after the crisis. External audit had
non-significant effects on labor productivity
before the crisis, while it has positive effects
on labor productivity after the crisis.
The findings from this study support
Mitton’s (2002) argument that corporate governance could have played a critical role in
firm performance in emerging markets during the East Asian financial crisis of 1997.
Similarly, Rajan and Zingales (1998) argue
that investigators are more likely to take the
quality of corporate governance into consideration during a financial crisis than during a
non-financial crisis period. In addition,
Clasessens and Djankov (1999a, 1999b) report that foreign ownership is positively related to the labor productivity of firms in the
Czech Republic, a transition economy.

272

The results of this study have several
implications. First, this study contributes to
the literature on emerging markets and corruption by testing the effects of the financial
crisis on the corruption-labor productivity
relationship in emerging markets. In addition,
the findings from this study show that the
factors that may influence the labor productivity of firms in emerging markets in the preand post-financial crisis periods are different.
Firm bribery did not have a significant impact on firm performance before the financial crisis, while it is significantly related to
labor productivity after the financial crisis.
Similarly, as seen in Table 4, external auditing is positively associated with labor productivity after the global financial crisis, while
the relationship between the two variables
was non-significant before the crisis. These
results imply that the financial crisis may have
changed the factors that influence firm performance.
The findings from this study have some
implications for practitioners. First, as corporate bribery has negative effects on labor
productivity after the crisis, businesses should
not bribe officials. Second, corporate
governance’s quality has positive effects on
labor productivity in emerging markets. This
implies that businesses should try to improve
the quality of their corporate governance. For
example, businesses should manage the ownership structure by increasing foreign ownership in emerging markets. Foreign investors
may assist in improving corporate governance,
because they can play a critical role in monitoring the decision-making of management.
Further, the disclosure quality needs to be
high, since external audits can have positive
impacts on labor productivity after the crisis.
External audits can contribute to firm performance in that they are increasingly regarded

Gadjah Mada International Journal of Business – Sept.-Dec., Vol. 20, No. 3, 2018

as providing clear information of the firm’s
accounting and financial performance, compared to an internal audit. In other words, the
fact that businesses are audited externally may
be considered as being ethical, thus giving
them a good reputation, which in turn could
lead to an increase in sales.
Despite its contributions, this study has
some limitations. First of all, only a few of
the sample businesses participated in both the
2006 and 2010 surveys. This prevents us from
comparing the differential effects of the financial crisis on the relationship between the
test variables —bribery, informality, external
audit, etc.— and labor productivity. Therefore, further research should be conducted on
panel data, which have high rates of sample
retention. Similarly, as the impact of the 2008
financial crisis on firm performance may become clear in the future, longitudinal studies
may be necessary for more robust outcomes.
In addition, since Mexico’s case was
tested, the findings from this study may not
be applicable to other emerging markets such
as China, India, Vietnam, etc. Although
Mexico has been considered a fast-growing
economy, business environments or institutional features are different across transition
economies (Kang and Chung 2015). Accordingly, it would be necessary to test the effect
of the financial crisis on the determinants of
labor productivity by using data from other
transition economies.
Another limitation is that this study
deals with informality, bribery, external audits, and others as the determinants of labor
productivity. There are other possible elements that influence labor productivity, such
as Research and Development (R&D) efforts
(Lederman and Maloney 2003) and training
(Kang 2016). Therefore, future studies need
to be conducted on the effects of the finan-

cial crisis on the relationship between these
factors and labor productivity.
Finally, this study uses labor productivity as an important indicator of firm performance. There are other financial or accounting indicators that present firm productivity,
such as Return on Assets (ROA), Return on
Investments (ROI), earnings, or earnings
growth. Thus, further research could investigate the relationship of the test variables of
this study to the financial or accounting performance of emerging markets in the pre- and
post-financial crisis periods.

Conclusion
The global financial crisis of 2008 was
considered to be the largest global economic
downfall since the Great Depression of the
1930s (Dal Bianco et al. 2017). The main
purpose of this study was to determine the
effects of the financial crisis on firm performance in emerging markets. To this end, a
sample of 2,061 Mexican firms was used to
investigate the factors that could influence
labor productivity in the pre- and post-financial crisis periods. The study concludes that,
before the crisis, informality and foreign ownership had positive effects on labor productivity. However, after the crisis, bribery and
informality are negatively related to labor
productivity, while the quality of corporate
governance—foreign ownership and external
audit—is positively associated with labor productivity.
The findings of this study will contribute to the understanding and improvement
of labor productivity in emerging markets
after the financial crisis. The focus on emerging markets today is relatively weaker than
in the early 2000s because, since then, it has
been discovered that emerging markets have

273

Kang and Na

a structural vulnerability resulting from institutional voids. However, with improved
infrastructure, there are more market opportunities and global businesses in emerging
markets, and it is necessary to investigate how
the financial crisis affects firm performance
in emerging markets.
Nevertheless, this study has some limitations, which provide further research opportunities. First, this study uses a sample in
which only a few companies participated in
both the 2006 and 2010 surveys. For more
correct comparisons, the relationship of bribery, informality, and corporate governance
quality to labor productivity may need to be
tested on the same companies. Therefore,
future research requires panel data that have
high sample retention rates, in order to compare the determinants of labor productivity
before the crisis with those after the crisis.

generalize the study results. Although the focus was on the test variables that are regarded
as the remarkable features of emerging markets, the local context of emerging markets
differ between countries. Accordingly, further
studies need to be conducted on a sample of
diverse cases to generalize the findings from
this study.
Finally, this study attempted to identify
the determinants of labor productivity before
and after the financial crisis. However, there
are other potential indicators of financial, or
accounting performance, such as stock price
growth, earnings growth, and so on. Stock
price or earnings growth is an indicator of
firm performance for financial markets. In
addition to organizational efficiency, future
research needs to explore the determinants
of the financial outcomes of emerging markets.

Next, as this study uses the Mexican case
of emerging markets, it may be difficult to

Acknowledgement
This research was supported by the Keimyung University Research Grant of 2017.

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