Corruption and Management Practices, Firm Level Evidence

Abstract

We argue that corruption can decrease aggregate productivity by deteriorating firm management practices. We investigate the impact of regional corruption on the management quality of firms within the manufacturing sector in Central and Eastern Europe. To do this we construct a new data set merging a survey of firm management practices and regional measures of corruption from population and firm surveys. The empirical challenge is that bribing practices in the public sector may evolve in response to firm behaviors, and regional corruption is measured with error. To identify causal effects, our preferred specifications use a difference-indifferences instrumental variable methodology. We measure the manufacturing industries' sensitivity to corruption using their level of dependence to contract institutions. Controlling for regional and manufacturing industry-country fixed effects, we find that firms in more contract dependent industries located in more corrupt regions tend to have lower management quality, more centralized decision-making process and lower level of education of administrative workers. In more corrupt regions, contract dependent firms are also characterized by lower investments in R&D and smaller product markets. Using falsification tests, we show that contract dependent firms do not appear more affected than other firms by business barriers such as transport infrastructure, level of taxes and tax administration, or access to finance. By contrast, contract dependent firms systemically report corruption as a more severe barrier in doing business, and particularly corruption in the judicial system.

Effect of corruption on firm level innovation: Evidence from Pakistan

“…The structural break cointegration results indicated that corruption is detrimental to economic growth. Athanasouli and Goujard (2015) concluded that probability of corruption is greater for firms which are more contract dependent, having lower management practices and productivity. 9(1), 41-47, 2019…”

Do political connections matter for firm innovation? Evidence from emerging markets in Central Asia and Eastern Europe

“…Existing institutional rationales (North, 1981;North, 1990) emphasize how the institutional context surrounding the firm critically determines its behavior in general and innovation in particular (Barasa et al 2017;Krammer, 2018). As such, Eastern European and Central Asian countries present an ideal setting for testing our hypotheses by sharing a common historical background (i.e., all former communist economies) yet exhibiting large variation in terms of institutional quality (Meyer et al 2009;Michelson, 2007;Jiménez et al 2017), non-market strategies (Athanasouli and Goujard, 2015;Krammer, 2019), and overall innovation performance (Krammer, 2009).…”

A Dynamic Simulation Approach to Frame Drivers and Implications of Corruption Practices on Firm Performance

“…– see Table ). The main competitive performance indicators (i.e., contract completion, resource and management quality, image) display decreasing behaviours related to the effect of both high country‐ and firm‐level corruption (Gaviria, ; Svensson ; Blackburn et al ., ; Fisman and Svensson ; Athanasouli and Goujard, ). The persistent impact of corruption is also revealed by the average bribes paid per contract that shows an increasing pattern over time.…”

“…Bribery and its implications have been largely explored in literature with an emphasis on country‐level perspective and cross‐country analysis (an incomplete list of the main recent contributions on country‐level corruption includes: Ades and Di Tella, , ; Mauro, ; La Porta et al ., , ; Wei, ; Hellman et al ., ; Treisman, ; Persson et al ., ; Brown, ). So far, corruption determinants and implications at a firm‐level have been investigated in a limited stream of research (Gaviria, ; Reinikka and Svensson, ; Svensson, ; Fisman and Svensson, ; Asiedu and Freeman, ; Cosenz, ; Rand and Tarp, ; Athanasouli and Goujard, ).…”