Journal of Financial and Quantitative Analysis

Research Articles

Bribe Payments and Innovation in Developing Countries: Are Innovating Firms Disproportionately Affected?

Meghana Ayyagaria1, Asli Demirgüç-Kunta2 and Vojislav Maksimovica3

a1 ayyagari@gwu.edu, School of Business, George Washington University, 2201 G St NW, Washington, DC 20052

a2 ademirguckunt@worldbank.org, Development Research Group, World Bank, 1818 H St NW, Washington, DC 20433

a3 vmax@rhsmith.umd.edu, Smith School of Business, University of Maryland, 4417 Van Munching Hall, College Park, MD 20742.

Abstract

Innovating firms pay more bribes than noninnovators across 25,000 firms in 57 countries. The difference is larger in countries with more bureaucratic regulation and weaker governance. Innovators that pay bribes do not receive better services and do not have greater propensity to engage in other illegal activities such as tax evasion. Thus, innovators are more likely to be victims of corruption than perpetrators. Our findings point to the challenges facing entrepreneurs in developing countries and are consistent with the view that rent seeking by government officials unlike private criminal activity is more likely to target innovators.

Footnotes

  This research was supported by a grant from the National Science Foundation (NSF). We thank Julian Atanassov (the referee), Michael Bradley, Mihir Desai, Robert Goldstein, Ross Levine, Paul Malatesta (the editor), Ron Masulis, Amit Seru, Hans Stoll, S. Vishwanathan, and seminar participants at the 2009 National Bureau of Economic Research (NBER) Entrepreneurship Working Group, 2009 Conference on the Role of Government Regulation in Corporate Finance at Vanderbilt University, and the 2008 Annual Meetings of the Academy of International Business for their comments and suggestions. This paper’s findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent.

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