Corruption and firm performance

evidence from pakistani enterprises

Resumen

Corruption is a curse in Pakistan, neither public office nor any structure immune from this phenomenon. Inspired by this, the study commits to examine two significant research issues. First the study assesses to find whether corruption greases the wheel or sanding it. Second, the study commits to determine what causes corruption in firms. This study is based on the World Bank's enterprise survey, data of Pakistani firms. This study tries to associate the effects of corruption on firm performance after controlling for firm specific factors. We check two sets of variables; first set is the variables that cover firm specific characteristics and other is variable that cover intervention with government agencies. The overall conclusion depicts a mixed approach on corruption effects. Our evidence shows that there is a negative association of corruption on firm performance which supports that the hypothesis of ‘sand the wheels’ is widely applicable in Pakistan. The results conclude that younger firms, directly exporting firms, large size firms are more likely to experience a deteriorating effect on their performance. Our study interestingly shows that bureaucratic complexities faced by the firms increases the performance of the firms which supports ‘Grease the wheels’. Study finds that firms struggling in terms of sales growth, younger firms, firms in growing competition, large firms are more likely to pay bribes.