Does social capital reduce entrepreneurs' petty corruption? Evidence across Indonesian regions

Abstract

Petty corruption is a barrier to entrepreneurship in emerging countries, justifying to investigate its determinants. Using data on 1,240 entrepreneurs across Indonesian regions, we analyse the effects of social capital. Two‐evel ordered probit regressions show that weak‐ties discourage entrepreneurs' bribing, strong‐ties encourage it, whereas this latter effect is moderated by the quality of access to formal credit. Bribing banks or turning to relatives for external funding are alternative solutions for entrepreneurs facing poor access to formal credit, a common feature in emerging countries, and the second solution is preferred given the risk and psychological costs of corruption.

Entry, speed and degree of formality for household businesses: an integrated approach

“…At the root of the resource-based view, a firm’s resource characteristics – namely, firm size, age, innovation capacity, access to formal credit and internationalisation – have a significant impact on formal entry and the degree of formality (Bakehe and Mbondo, 2021; Cling et al , 2012; Hanoteau et al , 2021; Lehmann and Zaiceva, 2015). In contrast to prior findings, the findings of this study reveal that internationalisation and innovation significantly impact the admission and degree of formality when viewed through the lens of entrepreneurship (Bu and Cuervo-Cazurra, 2020).…”

“…This study integrates theoretical lines explaining the informality of household businesses through multiple lenses, including the resource-based view, entrepreneurship theory and institutional perspectives Günther and Launov, 2012;Perry et al, 2007;Williams and Kosta, 2019). At the root of the resource-based view, a firm's resource characteristicsnamely, firm size, age, innovation capacity, access to formal credit and internationalisationhave a significant impact on formal entry and the degree of formality (Bakehe and Mbondo, 2021;Cling et al, 2012;Hanoteau et al, 2021;Lehmann and Zaiceva, 2015). In contrast to prior findings, the findings of this study reveal that internationalisation and innovation significantly impact the admission and degree of formality when viewed through the lens of entrepreneurship (Bu and Cuervo-Cazurra, 2020).…”

“…Informal firms that cannot provide reliable documentation to obtain formal loans must rely on informal lenders. Bribing banks or approaching relatives for external funding are alternative solutions for entrepreneurs who Degree of formality for household businesses lack access to formal credit, a common occurrence in emerging markets, and the latter is preferred given the risk and psychological cost of corruption (Hanoteau et al, 2021). Therefore, the primary challenge for entrepreneurs is eliminating barriers to formal credit access, developing resources for enterprises to increase investment and encouraging registration.…”

“…In recent years, informal enterprises and entrepreneurial determinants have proliferated (Am esquita Cubillas et al, 2018;Babbitt et al, 2015;Bakehe and Mbondo, 2021;Hanoteau et al, 2021;Williams et al, 2020). Until now, most of the literature has separated formally from informal entrepreneurs.…”

Corruption and Social Capital: Findings From Selected OECD Countries

“…In their study Hanoteau et al (2021) explores the impact of social capital on petty corruption as a barrier to entrepreneurship in emerging economies, utilizing data from 1,240 entrepreneurs across Indonesian regions. Employing two-level ordered probit regressions, we uncover a complex interplay between social network ties and bribery behavior.…”