Prior literature on the role that firm heterogeneity plays in corruption finds that larger firms pay smaller bribes and are less likely to pay bribes than smaller firms. These studies, however, often overlook the plausible reverse causality between firm growth or firm size and corruption. Utilizing an innovative identification strategy that accounts for this source of endogeneity, this study finds that increased firm size actually causes greater corruption and bureaucratic burdens on a typical firm and provides evidence against the argument for a uniform corruption burden regardless of size. It was determined that a one standard deviation increase in sales leads to 0.33 standard deviation increase in bribes, and to 0.36 standard deviation increase in management time spent dealing with public officials. Moreover, although corruption burden increases with increasing firm size, we find that this relationship is non-linear and diminishes in magnitude as firm size approaches to medium and large. We conclude with implications and policy considerations.
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Dr. Nguyen has been received a United Nations University UNU-MERIT Ph.D Fellowship and Indiana University’s postdoctoral fellowship funded by the Searle Freedom Trust when conducting this work.
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Nguyen, T.D. Does firm growth increase corruption? Evidence from an instrumental variable approach. Small Bus Econ 55, 237–256 (2020). https://doi.org/10.1007/s11187-019-00160-x
- Firm growth
- Firm size
- Burdensome bureaucracy