Institutions and entrepreneurship: the mediating role of corruption

Abstract

Purpose The purpose of this paper is to examine the mediating role of corruption in the relationship between entrepreneurship and institutional quality in a sample of 90 countries from all around the world. Design/methodology/approach The data were collected from the Global Entrepreneurship Monitor, which developed a model where Corruption Perception Index as a proxy for corruption mediates the relationship between the variable rule of law as a proxy for institutional quality and opportunity entrepreneurship as a proxy for productive entrepreneurship. Correlation, Baron and Kenny approach (causal steps approach) and PROCESS Macro (normal test theory) developed by Hayes were used to find out the direct and indirect effects of institutional quality between corruption and entrepreneurship. Findings The bootstrap mediation results indicated that institutional quality was a significant predictor of corruption and corruption was a significant predictor of entrepreneurship. These findings support the mediation hypothesis. In addition, findings showed that there is a negative relation between corruption and productive entrepreneurship and a positive relation between institutional quality and productive entrepreneurship. Research limitations/implications The current study only considered the single proxy for institutional quality, i.e. rule of law; therefore, some other proxies for institutional quality such as government effectiveness and doing business can be used for future studies. Moreover, the proposed model does not control for the country differences like GDP or development stages of countries. Practical implications The findings of this study indicate that the total association between institutional quality and entrepreneurship is not only direct but also that rule of law contributes to levels of entrepreneurship through reduced levels of corruption. As a result, countries with higher levels of rule of law tended to experience corruption at lower levels, which in turn contributed to the emergence of increased levels of entrepreneurship. Furthermore, these results may be beneficial for organizations fighting against corruption, because entrepreneurial activity can be add to the group of economical drivers constrained by corruption. It is also beneficial for policy makers who focus on promoting entrepreneurship, since one way to increase entrepreneurial activity is to lower the existing corruption level. Originality/value The results indicated that the direct effect of institutional quality on the entrepreneurship remained significant when controlling for corruption, thus suggesting partial mediation. In other words, corruption only mediates part of the effect of institutional quality on entrepreneurship, that is, the intervention (institutional quality) has some residual direct effect even after the mediator (corruption) was introduced into the model.

Institutions and Entrepreneurship Quality

“…It is likely that bankruptcy laws provide greater legal support for entrepreneurs in developing countries where informal institutions would otherwise regulate the insolvency (Estrin & Mickiewicz, 2011). Hypotheses H4a and H4b are supported (Fig.1H) by showing corruption acts as grease' than sand for the wheel of business (Méon & Weill, 2010), with the effect being stronger for developing countries (Mohammadi Khyareh, 2017). In developed countries with higher-quality institutions, corruption works as an additional tax (Belitski et al 2016) and has a negative impact on entry when the corruption is in its fourth quintile (>1.5 see Fig.1H).…”

“…We used measures available in the World Economic Forum (WEF Global Competitiveness Report), GEM and WIPO data over 2005-2015, drawing on principles of productive and unproductive entrepreneurial behavior (Baumol, 1990). We drew from the existing literature (Sobel, 2008;Mohammadi Khyareh, 2017) and created a net entrepreneurial productivity (NEP) index for 74 countries following Sobel's (2008) approach but using six new proxies. These proxies capture entrepreneurial behavior and the environment in a country which may affect the choice between productive and unproductive entrepreneurship (see Table A3 in online Appendix).…”

“…corruption, customary land rights). Corruption can be considered as an informal institution and an indicator of poor quality institutions (Mohammadi Khyareh, 2017;Wiseman, 2015). This paper defines corruption as the use of public office for private gain (Rose-Ackerman, 2007, 1999.…”

Entrepreneurial ecosystems, institutional quality, and the unexpected role of the sustainability orientation of entrepreneurs

“…The average level of EE intensity is 4.72 with 1.57 standard deviation. Taken together our two measures represent a novel approach to measuring various aspects of EEs, building on Khyareh's (2017) recent quality of entrepreneurship review.…”

Institutions and Entrepreneurship in Africa: Does Democracy Matter?

“…A U-shaped relationship was found between political stability and entrepreneurship via corruption channel. The study by Khyareh (2017) revealed that institutional quality mediates the relationship between corruption and entrepreneurship in a panel of 90 economies. Rani and Kumar (2021) showed that institutional factors such as government effectiveness have considerable impact on entrepreneurial operations in BRICS economies.…”