Corruption and firm size

I came across this recent paper (here) that looked at corruption/bribery in Vietnam and found that as firms grew larger, they faced less corruptions/had to pay smaller bribes. The paper is called “Firm Growth and Corruption: Empirical Evidence from Vietnam” by Jie Bai, Seema Jayachandran, Edmund J Malesky, and Benjamin A Olken.

We find that firm growth reduces bribes as a share of revenues. We propose a mechanism for this effect whereby government officials’ decisions about bribes are modulated by inter-jurisdictional competition. This mechanism also implies that growth reduces bribery more for more mobile firms; consistent with this prediction, we find a larger effect for firms with transferable rights to their land or operations in multiple provinces.

Obviously, corruption is a big issue in Vietnam. It was tied at 117 by Transparency International’s 2018 Corruption Perceptions Index 2016, with a score mostly unchanged since 2012. Also, Vietnam is unique in that much of business and bribery is done on the provincial level, which allowed the researchers to test inter-provincial competition.

Reading through, it does seem like companies with good property rights, large employment and the ability to move (so competition between provinces is a real possibility) can face lower corruption/bribery.

One thing that I would have liked examined is whether there is a limit to bribery in absolute dollar amounts. What I mean is that as firms get larger and larger, to have the same percentage in bribery would mean that they are paying out big sums . So a company that had revenue of $100m could face something like $2m in bribes, which might be reasonable, but a company with $10bn in revenues would have to give away $200m in bribes. Maybe the officials would be wary about accepting that much in bribes. How would they “launder” it? They might be concerned that their national bosses would be jealous of their new wealth, especially if it was spread among a small number of officials.

Having said that, my experience in Saudi shows that bribes/corruption can be very high. The government said they recovered more than $100bn in assets.

Anyway, the paper is extremely interesting and well worth a read.