Bribery Environments and Manufacturing SME Efficiency: Evidence from a Transitional Economy

ABSTRACT

The corporate governance literature focuses on the firm-level corrupt environments of firm performance and does not pay sufficient attention to the importance of competition and CEO gender. Motivated by recent developments integrating a bribery perspective with contextual moderators in firm efficiency studies, this study attempts to present empirical evidence regarding the bribery-efficiency relationship in Vietnamese small- and medium-sized enterprises (SMEs) from 2011 to 2015. Using the stochastic frontier approach to estimate firm technical efficiency scores, we find that an environment characterized by a high level of bribery has an adverse effect on firm efficiency. We also find that a dispersed business environment characterized by considerable heterogeneity in corruption perception is associated with an increase in firm efficiency. Furthermore, the results suggest that firms facing competitive forces are associated with less efficiency relative to firms without pressure. Moreover, efficiency tends to be greater for firms with a lower propensity to behave corruptly, such as firms managed by females. To investigate whether the effects of bribery on efficiency are dependent on firm competitive pressure and gender attitudes, we check whether these relations are particularly strong for firms highly pressured by competition and firms run by a female CEO; our results show strong support for this conjecture. The effects of competition and gender are particularly strong for firms operating in provinces with a low level of transparent competitiveness, while no effect is observed for firms that operate in provinces with a high level of competitive governance.

KEYWORDS:

• Technical efficiency
• bribery
• competition
• gender
• SMEs

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. This paper adopts the Vietnamese government definition of SME as a company that employs up to 300 employees (CIEM, 2016).

2. 10 Vietnamese provinces include Ha Noi, Phu Tho, Ha Tay, Hai Phong, Nghe An, Quang Nam, Khanh Hoa, Lam Dong, Ho Chi Minh, and Long An.

3. See, for example, Coelli et al. (2005); T. B. Tran et al. (2008); Charoenrat and Harvie (2013, 2014).

4. Following Hanousek et al. (2019), we focus on the main question Aq88 – “Do you have to pay informal/communication fees?” in VSME and employ the subquestion Aq88b – “If yes, approximately how much did you pay in total?” to construct the variable of bribe payments.

5. We employ questions Aq2b and Aq2c in the VSME to construct the variable of CEO gender in which firms managed by female CEOs (Female CEO). The percentage of the sampled firms has a female CEO is 39%. See Table 1 for the descriptive statistics of the main variables.

6. We follow the same procedure of Doan et al. (2021) and Nguyen Dang et al. (2021)to define Product innovation and Technical innovation variables which focuses on questions Aq122 – “Has the firm introduced new product groups” – and Aq124 – “Has the firm introduced new production processes/new technology?” – respectively.

7. We use the subquestion Aq88c – “What is the bribe payment/communication fee mainly used for?” – in VSME to define the vector of these control variables.

8. The results are available upon request.

9. For example, focusing on SMEs and state-owned enterprises (SOEs) in Vietnam, Nguyen and Van Dijk (2012) and VCCI-USAID (2016) showed that it is common for firms in finding new business line to have to pay extra ‘informal payments’, in which bureaucrats cause troubles when processing procedures for businesses.