Impact of Private Incidence of Corruption and Firm Ownership on Performance of Firms in Central and Eastern Europe

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in February 20121 The paper has benefited from financial support of the European Investment Bank (EIB), funded under the STAREBEI program for financing of University research. The views expressed herein are those of the authors and do not necessarily reflect the views of the European Investment Bank. We also thank EIB Economic and Research departments, participants at the EIB Third Annual Meeting, and especially EIB Co-tutor Simona Bovha Padilla and EIB Economic Advisor Maria Luisa Ferreira for offering very constructive and helpful suggestions. The paper has also benefitted from discussion with participants of the ICABEC conference (Kuala Terrengganu) and EBR Conference (University of Ljubljana). 2 Impact of Private Incidence of Corruption and Firm Ownership on Performance of Firms in Central andEastern Europe AbstractThe paper investigates how efficiency of business environment and corruption (informal payments and state capture) affect the microeconomic performance of firms. The novelty of the paper is to look at these effects in the interaction with the firm ownership. We use firm-level micro data collected by the Business Environment and Enterprise Performance Survey (BEEPS) for 27 transition countries for the period [2002][2003][2004][2005][2006][2007][2008][2009]. Among other data, BEEPS collects also information on different corruption activities at the firm-level and firm ownership. We find somehow surprising results that private firms (domestic and foreign owned) are more involved both into informal payments as well as state capture activities. Our results also reveal that foreign owned firms that are involved in informal payments are likely to benefit from these corruption practices. On the other side, state owned firms are more likely to experience negative effects of involvements in corruption practices on productivity growth. After 2004, involvement of firms in corrupt practices diminished, and that their negative impact on firm performance dissipates indicating an improvement in the stability of business environment and law enforcement.

Corruption as an obstacle for doing business in the Western Balkans: A business sector perspective

“…Corruption is perceived as a major hurdle for regional investment and business efficiency (EUROCHAMBRES, 2009). The average frequency of informal payments in 2009 was around two in the observed Western Balkan countries, as reported in BEEPS (Blagojević and Damijan, 2011). Corruption is a primary obstacle faced by business establishments in Kosovo (according to 21% of respondents), and is considered a significant factor in Croatia (9%), Albania and Bosnia and Herzegovina (8%), Serbia (7%), and Montenegro (6%).…”

The Perceived Impact of Public Sector Corruption on Economic Performance of Micro, Small, and Medium Enterprises in a Developing Country

“…Vial and Hanoteau (2010) found that corruption is associated with an increase in firm output and productivity. Blagojevic and Damijan (2012) found that private firms that are involved in making corrupt payments to public officials have higher productivity than firms that do not make payments.…”

“…In a Turkish study, Ayaydin and Hayaloglu (2014) found that manufacturing firms that are involved in making corrupt payments to public officials had increased growth. Blagojevic and Damijan (2012) concluded that private firms that offer bribes to public officials will have higher productivity than those that do not offer bribes. Our findings suggest that the need to mitigate the corruption obstacle in MSMEs appears to be a rational economic choice that often benefits MSMEs.…”

The Impact of Corruption and Rent-Seeking Behavior upon Economic Wealth in the European Union from a Public Choice Approach

“…However, in comparison to older EU member states, new European member states with lower GDP are more prone to corruption, this phenomenon affecting economic wealth to a greater extent. The main reason for this divergence in comparison with the OMS resides in the institutional quality, as well as in the historical background, of NMS in terms of democracy, culture and population education, and trust in the state apparatus, as concluded by Blagojevic and Damijan [58] and Bakowski and Varonova [59]. As stated by Van Der Hoek [60], high levels of corruption expose enterprises and businesses to additional risks, and have a burdensome impact on economic growth, especially in the new post-communist member countries.…”