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The Effect of Corruption on Firm Growth: Evidence from Firms in Turkey

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  • Hasan Ayaydın
  • Pınar Hayaloglu

Abstract

To our knowledge, there is no micro-level study paying attention to the influence of corruption on firm growth. We aim to fill this gap in the literature. This paper therefore contributes to the limited literature on the link between corruption and firm growth in a single country, Turkey. To estimate the relationship between firm growth and corruption, we analyze a sample of 41 firms from manufacturing firms in Turkey, covering the period from 2008 to 2011 by using static panel techniques. The study find evidence that the effect of corruption level, profitability and financial leverage on the growth of the firms is significantly positive in all case, but financial risk rating is negative. We find specifically a significantly positive relation between the growth of private firms and corruption level. This leads that corruption could increase economic development, mainly because illegal practices and payments as ‘speed money’ could surpass bureaucratic delays; the acceptance of bribes in government employees could work as an incentive and increase their efficiency and because corruption is possibly the price people are forced to pay as a result of market failures. The results of this study provide managerial implications for industrial companies from Turkey: Company managers should increase profitability, should reach economies of scale, an optimal capital structure level and reach the optimal level of working capital level due to profitable firms grow faster than other companies. We also suggest that policy-makers improve in public governance quality and the leveling of the playing field for firms in all business sectors to reduce corruption level because firms tend to pay bribes and the time that is wasted on bureaucratic procedures and engage in corrupt practices in an attempt to promote their short-term growth by facilitating transactions in the bureaucratic process.

Suggested Citation

  • Hasan Ayaydın & Pınar Hayaloglu, 2014. "The Effect of Corruption on Firm Growth: Evidence from Firms in Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(5), pages 607-624.
    • Handle: RePEc:asi:aeafrj:v:4:y:2014:i:5:p:607-624:id:1180
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    Citations

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    Cited by:

    1. Lee, Mina & Mutlu, Canan & Lee, Seung-Hyun, 2023. "Bribery and Firm Growth: Sensemaking in CEE and Post-Soviet Countries," Journal of International Management, Elsevier, vol. 29(1).
    2. Mustafa ÜNVER & Julide Yalçýnkaya KOYUNCU, 2016. "The Impact of Poverty on Corruption," Journal of Economics Library, KSP Journals, vol. 3(4), pages 632-642, December.
    3. Anh‐Tuan Doan & Bich‐Thanh Truong & Chi‐Cuong Nguyen & Phan‐Tam‐Nhu Nguyen & Hai‐Yen Truong & Anh‐Tuan Le, 2023. "Corruption and corporate leverage in an emerging economy: The role of economic freedom," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(2), pages 599-629, June.
    4. Evangelos Rasvanis & Vassilis Tselios, 2023. "Do geography and institutions affect entrepreneurs’ future business plans? Insights from Greece," Journal of Innovation and Entrepreneurship, Springer, vol. 12(1), pages 1-21, December.
    5. Chih-Hai Yang & Meng-Wen Tsou, 2020. "Globalization and firm growth: does ownership matter?," Small Business Economics, Springer, vol. 55(4), pages 1019-1037, December.
    6. Udit MAHESHWARI & Ashutosh PRIYA & Ravi Kumar GUPTA, 2022. "An analysis of the effect of widespread unemployment on corruption," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(633), W), pages 163-172, Winter.
    7. Colin C. Williams & Abbi M. Kedir, 2016. "The Impacts Of Corruption On Firm Performance: Some Lessons From 40 African Countries," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-18, December.
    8. Nandika Sanath Kumanayake & Ajantha Sisira Kumara & Asankha Pallegedara, 2023. "The nexus between public sector corruption and private sector efficiency: Evidence from worldwide firm‐level data," Review of Development Economics, Wiley Blackwell, vol. 27(2), pages 1056-1077, May.
    9. Eugene E. Ezebilo & Francis Odhuno & Philip Kavan, 2019. "The Perceived Impact of Public Sector Corruption on Economic Performance of Micro, Small, and Medium Enterprises in a Developing Country," Economies, MDPI, vol. 7(3), pages 1-17, August.
    10. Chei Bukari & Emm anuel Atta Anaman, 2021. "Corruption and firm innovation: a grease or sand in the wheels of commerce? Evidence from lower-middle and upper-middle income economies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 267-302, June.
    11. Maurizio La Rocca & Tiziana La Rocca & Francesco Fasano & Javier Sanchez-Vidal, 2023. "From the Top Down: Does Corruption Affect Performance?," Papers 2310.20028, arXiv.org.
    12. Khémiri, Wafa & Noubbigh, Hédi, 2021. "Joint analysis of the non-linear debt-growth nexus and capital account liberalization: New evidence from sub-Saharan region," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 614-626.
    13. Bahadır Ergün & Ömer Tuğsal Doruk, 2020. "Effect of financial constraints on the growth of family and nonfamily firms in Turkey," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-24, December.
    14. Phuoc Vu Ha & Michael Frömmel, 2023. "Corruption, business environment, and firm growth in Vietnam," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2512-2529, July.
    15. Brzić, Barbara & Dabić, Marina & Kukura, Frane & Podobnik, Boris, 2021. "The effects of corruption and the fraction of private ownership on the productivity of telecommunication companies," Technology in Society, Elsevier, vol. 65(C).
    16. Murharsito & Fitri Ella Fauziah & Emanuel Kristijadi & Rr. Iramani, 2017. "Provincial corruption and local development bank performance," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 9(1), pages 66-73, April.
    17. Philip Akrofi Atitianti & James Chukwubudom Chikelu, 2021. "Corruption and firm growth: evidence from Nigeria," SN Business & Economics, Springer, vol. 1(5), pages 1-18, May.
    18. Colin C. Williams & Alvaro Martinez-Perez, 2016. "Evaluating the impacts of corruption on firm performance in developing economies: an institutional perspective," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 16(4), pages 401-422.

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