Corruption and Firm Performance

Narek Sahakyan and Kyle Stiegert ()

Eastern European Economics, 2012, vol. 50, issue 6, 5-27

Abstract: Most empirical research on the subject of corruption has found evidence of its deleterious effects on firms, industries, and society in general. Yet the persistence of corruption, which is present in virtually every form of public governance, suggests that the disparate benefits are difficult to unravel and lead to support for the status quo. In this paper, the authors analyze survey data from over 400 Armenian businesses to study the perceived favorability and impact of corruption on firm-level performance. The research relies on the data from two ordered response survey questions on corruption that were collected as part of a broad survey of issues facing firms pertaining to competition and industry structure. The dual role of the perceived favorability and degree of impact of corruption are modeled in a seemingly unrelated bivariate ordered probit framework. We find that corruption is perceived as more favorable among firms that (1) do not face significant competition, (2) are relatively larger, and (3) younger. Personal characteristics of the respondents, except for the level of education, explain neither the perceived favorability nor impact of corruption. The results show that the model has high predictive power. Our results suggest that enforcement of antitrust policies, encouragement of polices that foster competition, and possibly nonprotectionist trade policies will assist in the battle against corruption.

Date: 2012
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