Does corruption boost or harm firms’ performance in developing and emerging economies? A firm‐level study

Abstract

In the last decade, a growing number of studies have addressed the ongoing debate about whether corruption “sands” or “greases” the wheels of business at the firm level. This study revisits this debate and proposes a comprehensive theoretical framework to test whether corruption harms or boosts firm performance, as well as the extent to which this relationship is mediated by the countries’ institutional settings, the size and strategic behaviour of the firms, and market competition. Based on a sample of 21,250 firms located in 117 emerging and developing countries, and resorting to instrumental variable (IV) estimations, three main results were found: (a) regardless of the proxy used for corruption and firm performance, the former clearly harms the latter; (b) corruption “greases the wheels” of business for African firms but it “sands the wheels” for firms in Latin America, the Caribbean, Eastern Europe, Central Asia, and Southern Asia; and (c) the negative impact of corruption on performance is mitigated for larger and exporting firms.

Why are Africa's Female Entrepreneurs Not Playing the Export Game? Evidence from Ghana

“…Also, smaller firms may suffer more from corruption than larger firms because they have fewer resources to offer as bribes (O'Toole and Tarp, 2014;Mendoza et al, 2015;Paunov, 2016). Furthermore, it has been shown that selling in foreign markets mitigate the negative effects of a corrupt domestic environment (Olney, 2016;Martins et al, 2020), even though exporters are often forced into one-off bribery to obtain export licences (Sharma and Mitra, 2015;Soans and Abe, 2016;Seck, 2020).…”

Does Corruption Impact Firm Innovation? Evidence from Portugal

“…In other words, that corruption sands the wheels of business (Ashyrov and Masso 2020;Wu 2019). Yet, in certain institutional setups, usually those in which corruption is most prevalent, corrupt activities have been found to offer a helpful grease for firms to overcome artificial hurdles and 'get things done' (Martins et al 2020). Previous research has therefore not supported any simple, black-and-white relation between corruption and firm performance (Nur-tegin and Jakee 2020).…”

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

“…Prior literature has traditionally studied corruption in the macro-economic context (Anokhin and Schulze, 2009;Cieslik and Goczek, 2018;Mauro, 1995). Conversely, the corruption effect is still largely inconclusive at the micro-level (Bahoo et al, 2020;Martins et al, 2020) and the consensus of their impact on the firms' innovative activities in emerging countries has not been fully resolved (Alam et al, 2020). Consistent with this, most empirical studies on innovation tend to overlook the interaction effects on firms' R&D investments.…”

“…Conversely, the corruption effect is still largely inconclusive at the micro-level (Bahoo et al. , 2020; Martins et al , 2020) and the consensus of their impact on the firms' innovative activities in emerging countries has not been fully resolved (Alam et al. , 2020).…”