Do smaller businesses pay more bribes? Firm size, informal payments and mitigating strategies in Africa

ABSTRACT

In this paper, we sought to understand the effect of firm size on demand for and payment of bribes by African firms and the strategies needed to overcome them. We argued that size represents a selectionist pressure on firms to cede to corrupt demands while strategies (time to formalization, relational intensity and foreign participation) from the adaptive perspective of the organization are tools to deal with these pressures. We test our framework using data from the World Bank Enterprise Surveys in Africa. We find that the liability of smallness effect exists as the larger a firm gets the fewer bribes in percentage terms it pays out to corrupt public officials. We find also that time to formalization, relational intensity and foreign participation are significant moderators of this effect. The study makes a contribution by testing a contingent framework that integrates the selectionist and adaptive views of organizing.

KEYWORDS:

• liability of smallness
• small business
• corruption
• bribery
• entrepreneurship
• Africa

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

1 https://qz.com/africa/1597522/airbnb-to-get-regulated-taxed-in-south-africa-kenya-tanzania/

Additional information

Notes on contributors

George Acheampong

George Acheampong is an enterprise lecturer and researcher with extensive knowledge of local economy issues in many parts of Ghana and Africa. He set up and heads the University of Ghana Business School Innovation and Incubation Hub. He also leads the Africa Lab for Enterprise Development (Africa LED) that investigates how enterprise dynamics can drive development in Africa. In the past, George has held visiting PhD fellowships with the Development Economics Research Group at the University of Copenhagen, the UN University for Development Economics Research and the Center of Entrepreneurship at the University of South Florida, Tampa.

John Rand

John Rand is a professor of development economics at the University of Copenhagen. His research focus includes industrial policy and firm dynamics; quantitative impact evaluation of development projects; and macroeconomics of international capital flows. Professor Rand has significant country experience from Vietnam and Mozambique (resident advisor in 2001 and 2008, respectively) and research experience through project involvement in Bangladesh, Cambodia, Egypt, Ethiopia, Ghana, Kenya, Nicaragua, Rwanda, Senegal, Tanzania, Tunisia, and Uganda.