Local economic governance, entrepreneurial orientation and firms' intention to invest

This study examines the relationships between local economic governance, entrepreneurial orientation and firms’ intention to invest at the firm level. Using a stratified random sample of 635 firms collected in 11 districts in peninsular Malaysia, we ran both probit and linear regression analyses to test the association between those three variables. As hypothesized, firms in districts with better economic governance are more likely to have an intention to invest, holding constant firms’ entrepreneurial orientation, and controlling for firm age, firm size and sector. In addition, for each unit increase in district economic governance score, there is a seven percent increase in the likelihood of firms having an investment intention. Our study also provides evidence to support that older firms are less likely to invest further, fitting the life cycle theory of firms. Finally, innovativeness and risk-taking, two of the three sub-dimensions of entrepreneurial orientation are found positively associated with firms’ intention to invest while proactiveness, the third sub-dimension, is not. The implications of our findings to both policy makers and researchers are discussed.