Corruption, governance and firm performance: Evidence from Indian enterprises

Chandan Sharma and Arup Mitra

Journal of Policy Modeling, 2015, vol. 37, issue 5, 835-851

Abstract: Rising incidence of corruption and tax evasion in India in the recent years have attracted a great deal of attention and initiated intense debate on these issues. Motivated by this, the present study intends to examine two important research issues. First, we test the impact of bribe payment on firms’ performance. Specifically, from an empirical point of view, we investigate two important but alternative hypotheses namely ‘grease the wheels’ and ‘sand the wheels’. Second, we intend to identify firms that must pay bribe. The study is based on the enterprises survey data of the World Bank. The findings on the effects of bribe on firm's performance are rather mixed. We noted that bribe works as tax on profitability of firms and reduces efficiency. However, the evidence is inconclusive relating to productivity. On the other hand, bribing shows a positive effect on the firms’ export and product innovation. Therefore, the evidence provides support to both the hypotheses. Findings regarding who must pay bribe reveal that tax-evading firms are likely to pay greater bribes to the government officers. Furthermore, policy impediments are an important cause of bribe payment. Thus, it is the complexity in the system (policy or bureaucratic) which tends to raise the probability of paying bribes and dampen performance. In the light of these findings, policy implications are brought out.

Keywords: Corruption; Technical Efficiency; Labor Productivity; Tax compliance; India (search for similar items in EconPapers)
JEL-codes: D73 H26 H32 L25 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0161893815000599
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:37:y:2015:i:5:p:835-851

DOI: 10.1016/j.jpolmod.2015.05.001

Access Statistics for this article

Journal of Policy Modeling is currently edited by A. M. Costa

More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().