Corruption, R&D and performance: firm-level evidence from Latin America

Abstract

PurposeThis study aims to investigate how firms' perceived level of corruption moderates the relationship between Research and Development (R&D) investments and firms' financial performance.Design/methodology/approachThe study has used dynamic panel data for local private and public firms from Latin American countries (Brazil, Chile, Mexico and Peru) during 2012–2019. The unbalanced panel was estimated using generalized method of moments (GMM) and instrumental variables (IVs) to account for endogeneity issues.FindingsThe results showed that corruption has a direct and positive effect on firms' financial performance. Moreover, while firms' financial performance increases in the presence of corruption, the authors' findings suggest that corruption negatively moderates the relationship between R&D investments and firms' financial performance. This finding exposes the debate “grease the wheels” once corruption appears to work much more like sand than grease on more innovative firms. Finally, the authors observed a negative effect of long-term R&D investments on firms' performance, indicating that high levels of corruption harm even more long-term innovative activities.Research limitations/implicationsThe authors have delimited the scope to firms from four Latin American countries, and thus, the generalization to other countries, from Latin America or other emerging countries, needs to be made with caution. Furthermore, the authors used the corruption perception index (CPI) to assess the extent of corruption and, apparently, using a single measure may limit the understanding. Future research may deepen the authors' comprehension by exploring the effects of the different practices or types of corruption.Practical implicationsThe authors' findings have challenging policy implications denoting policymakers need to prioritize the institutional quality to reduce corruption and foster firms' R&D investments.Originality/valueThe paper has adopted a unique firm-level dataset from an underresearched region. This enriches a long-standing debate by providing new insights of corruption effects in Latin America. Therefore, the authors provided new evidence of the moderating relationship between corruption and R&D investments on more innovative firms' performance.

Reinventing the wheel? Factors influencing relationship: links between sustainability and financial performance. European evidence

“…In addition, Beta, firm leverage and firm size are also taken as firm-specific control variables. Previous empirical evidence supports this proposition (Khaled et al , 2021; Rahi et al , 2022a; Velte, 2017). Here, EVA is a measure of profitability that indicates FP, whereas Tobin’s Q is a market-based indicator.…”

“…In comparison to earlier studies on the subject, the values are reasonable and within the range (cf. Karmani and Boussaada, 2021; Rahi et al , 2022a; Velte, 2017).…”

“…In accordance with previous literature, firm size is negatively associated across models 1 to 4 (cf. Martínez-Ferrero and Frías-Aceituno, 2015; Rahi et al , 2022a; Velte, 2017). However, we believe, in line with stakeholders’ theory, that large firms are capable and socially bound to perform sustainability practices compared to their smaller counterparts.…”

“…The time span from 2015 to 2020 was chosen since most of the variable information was available during that period, and it was the most recent period when this analysis was carried out. Other studies on the topic of sustainability have used similar time spans (Rahi et al , 2022a; Velte, 2017). The purpose of choosing the above timespan is twofold.…”

“…A previous study identified that corruption, oppressive governments, poverty, injustice, human rights violations and pollution are interlinked (Frynas, 2009;Rahi et al, 2022b). Corruption promotes bureaucratic inefficiencies and obstructs business advancement, resulting in reduced FP (Hoang et al, 2022;Viglioni et al, 2022). Study by Ioannou and Serafeim, 2012 identified that corruption hinders corporate social performance.…”