Nonmarket effects on strategic fit and performance: An economic institutional change perspective

How do market and nonmarket environmental factors affect firm investment decisions and subsequent performance? Economic Institutional Change Theory is extended to the product market-firm level of analysis to develop a model of dynamic strategic fit to nonmarket and market factors. The co-evolution of market and institutional factors creates four basic opportunity sets comprised of low to high market opportunities and low to high political opportunities. Contingency models are estimated using generalized least squares regression for three of the four opportunity sets. Deviation from the contingency models is used to measure strategic fit and used to test the relationship between fit and economic performance. Empirical evidence did not support the assertion that fit is related to performance in the first two opportunity contexts. Empirical support was found in the third study for strategic fit to political factors.