IDEAS home Printed from https://ideas.repec.org/a/ids/ijbglo/v16y2016i4p401-422.html
   My bibliography  Save this article

Evaluating the impacts of corruption on firm performance in developing economies: an institutional perspective

Author

Listed:
  • Colin C. Williams
  • Alvaro Martinez-Perez

Abstract

Conventionally, corruption is viewed as deleterious to firm performance. Analysing World Bank Enterprise Survey firm-level data across 132 countries and controlling for other firm performance determinants, this paper finds that paying corrupt public officials enhances firm performance. This is argued to be because developing economies are characterised by formal institutional imperfections (e.g., inefficient public administration and the weak rule of law). Making bribe payments compensates for these formal institutional imperfections. Examining the policy implications of this rational economic act for entrepreneurs, but which is deleterious at the aggregate country level for economic development and growth, the argument is that public authorities should shift away from increasing the costs of corruption by improving the risks of detection and penalties, and instead focus upon the formal institutional imperfections that lead to endemic corruption in the developing world.

Suggested Citation

  • 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.
  • Handle: RePEc:ids:ijbglo:v:16:y:2016:i:4:p:401-422
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=76845
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jakob Svensson, 2003. "Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 207-230.
    2. De Rosa, Donato & Gooroochurn, Nishaal & Görg, Holger, 2010. "Corruption and productivity firm-level evidence from the BEEPS survey," Kiel Working Papers 1632, Kiel Institute for the World Economy (IfW).
    3. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    4. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    5. John McArthur & Francis Teal, 2002. "Corruption and firm performance in Africa," CSAE Working Paper Series 2002-10, Centre for the Study of African Economies, University of Oxford.
    6. Williams Colin C. & Horodnic Ioana A., 2015. "Explaining The Prevalence Of The Informal Economy In The Baltics: An Institutional Asymmetry Perspective," European Spatial Research and Policy, Sciendo, vol. 22(2), pages 127-145, December.
    7. Justin van der Sluis & Mirjam van Praag & Wim Vijverberg, 2005. "Entrepreneurship Selection and Performance: A Meta-Analysis of the Impact of Education in Developing Economies," World Bank Economic Review, World Bank Group, vol. 19(2), pages 225-261.
    8. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    9. Mark Philp, 1997. "Defining Political Corruption," Political Studies, Political Studies Association, vol. 45(3), pages 436-462, August.
    10. Baghdasaryan, Delia & la Cour, Lisbeth, 2013. "Competition, ownership and productivity. A panel analysis of Czech firms," Journal of Economics and Business, Elsevier, vol. 69(C), pages 86-100.
    11. Wiklund, Johan & Baker, Ted & Shepherd, Dean, 2010. "The age-effect of financial indicators as buffers against the liability of newness," Journal of Business Venturing, Elsevier, vol. 25(4), pages 423-437, July.
    12. Nicola Gennaioli & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2013. "Human Capital and Regional Development," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 105-164.
    13. Sandra Blagojevic & Jože P.Damijan, 2012. "Impact of Private Incidence of Corruption and Firm Ownership on Performance of Firms in Central and Eastern Europe," LICOS Discussion Papers 31012, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    14. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    15. Méon, Pierre-Guillaume & Weill, Laurent, 2010. "Is Corruption an Efficient Grease?," World Development, Elsevier, vol. 38(3), pages 244-259, March.
    16. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    17. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
    18. John Round & Colin C. Williams & Peter Rodgers, 2008. "Corruption in the post-Soviet workplace: the experiences of recent graduates in contemporary Ukraine," Work, Employment & Society, British Sociological Association, vol. 22(1), pages 149-166, March.
    19. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    20. Arthur T. Denzau & Douglass C. North, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Wiley Blackwell, vol. 47(1), pages 3-31, February.
    21. Donadelli, Michael & Persha, Lauren, 2014. "Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty," Research in International Business and Finance, Elsevier, vol. 30(C), pages 284-309.
    22. Gaviria, Alejandro, 2002. "Assessing the effects of corruption and crime on firm performance: evidence from Latin America," Emerging Markets Review, Elsevier, vol. 3(3), pages 245-268, September.
    23. Hasan Ayaydin & Pinar 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, May.
    24. Pierre-Guillaume Méon & Khalid Sekkat, 2005. "Does corruption grease or sand the wheels of growth?," Public Choice, Springer, vol. 122(1), pages 69-97, January.
    25. Daphne Athanasouli & Antoine Goujard & Pantelis Sklias, 2012. "Corruption and firm performance: Evidence from Greek firms," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 5(2), pages 43-67, August.
    26. Arvind Subramanian & Francesco Trebbi & Dani Rodrik, 2002. "Institutions Rule; The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 02/189, International Monetary Fund.
    27. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    28. Knack, Stephen & Keefer, Philip, 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Indicators," MPRA Paper 23118, University Library of Munich, Germany.
    29. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730, June.
    30. Andrei Shleifer & Robert Vishny, 1992. "Pervasive Shortages under Socialism," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 237-246, Summer.
    31. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    32. Jiang, Ting & Nie, Huihua, 2014. "The stained China miracle: Corruption, regulation, and firm performance," Economics Letters, Elsevier, vol. 123(3), pages 366-369.
    33. Wieneke, Axel & Gries, Thomas, 2011. "SME performance in transition economies: The financial regulation and firm-level corruption nexus," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 221-229, June.
    34. Francis Teal & John McArthur, 2002. "Corruption and Firm Performance in Africa," Economics Series Working Papers WPS/2002-10, University of Oxford, Department of Economics.
    35. Hasan Faruq & Michael Webb & David Yi, 2013. "Corruption, Bureaucracy and Firm Productivity in A frica," Review of Development Economics, Wiley Blackwell, vol. 17(1), pages 117-129, February.
    36. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
    37. Aidis, Ruta & van Praag, Mirjam, 2007. "Illegal entrepreneurship experience: Does it make a difference for business performance and motivation?," Journal of Business Venturing, Elsevier, vol. 22(2), pages 283-310, March.
    38. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    39. Vial, Virginie & Hanoteau, Julien, 2010. "Corruption, Manufacturing Plant Growth, and the Asian Paradox: Indonesian Evidence," World Development, Elsevier, vol. 38(5), pages 693-705, May.
    40. Francesco Barbera & Ken Moores, 2013. "Firm ownership and productivity: a study of family and non-family SMEs," Small Business Economics, Springer, vol. 40(4), pages 953-976, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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, Open Access Journal, vol. 7(3), pages 1-17, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijbglo:v:16:y:2016:i:4:p:401-422. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carmel O'Grady) The email address of this maintainer does not seem to be valid anymore. Please ask Carmel O'Grady to update the entry or send us the correct email address. General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=245 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.