Corruption and Firm Performance in Africa

This study uses recently collected firm-level data from 15 African countries by the World Bank between 2006–2015 to test the effect of bureaucratic corruption on firm performances – sales, labor productivity and... [ view full abstract ]

This study uses recently collected firm-level data from 15 African countries by the World Bank between 2006–2015 to test the effect of bureaucratic corruption on firm performances – sales, labor productivity and employment. To cater for potential endogeneity issues concerning firm bribery payments an IV approach is employed with the country-industry-year averages of bribery payments and percentage of time firm manager spends with public officials in a month (bureaucracy) serving as instrumental variables. Further, the first-difference estimator is employed to handle potential firm-specific time-invariant effects that could influence our analyses. We find evidence that corruption has both a contemporaneous and lag-effect on firm performances in Africa. We further uncover that, this negative effect is more pronounced for larger and older firms than small and medium-sized firms and young firms.