High growth firms are high on the policy agenda as empirical evidence consistently shows that they disproportionately contribute to economic growth via net job creation. Several innovation scholars analyze how high growth entrepreneurship responds to the local enabling environment, such as institutional and framework conditions. However, the majority of these studies look at the role of formal institutions (i.e., laws, property rights, regulations) and informal institutions (traditions, customs, religious beliefs, etc) separately, and without gauging for the quality of the government. Local institutional quality is considered key for firms to enter the market, innovate and grow.
Using exclusively open-source datasets, we analyze how government quality and regulations affect the share of high-growth firms in European regions. Our findings suggest that product and labor market regulations have a negative effect on the share of high growth firms only in regions with low quality of government. In contrast, regulations, when handled by high quality local public administration, tend to be associated with a larger share of high growth firms.