Abstract
To our knowledge, there is no micro-level study paying attention to the influence of corruption on firm growth. We aim to fill this gap in the literature. This paper therefore contributes to the limited literature on the link between corruption and firm growth in a single country, Turkey. To estimate the relationship between firm growth and corruption, we analyze a sample of 41 firms from manufacturing firms in Turkey, covering the period from 2008 to 2011 by using static panel techniques. The study find evidence that the effect of corruption level, profitability and financial leverage on the growth of the firms is significantly positive in all case, but financial risk rating is negative. We find specifically a significantly positive relation between the growth of private firms and corruption level. This leads that corruption could increase economic development, mainly because illegal practices and payments as ‘speed money’ could surpass bureaucratic delays; the acceptance of bribes in government employees could work as an incentive and increase their efficiency and because corruption is possibly the price people are forced to pay as a result of market failures. The results of this study provide managerial implications for industrial companies from Turkey: Company managers should increase profitability, should reach economies of scale, an optimal capital structure level and reach the optimal level of working capital level due to profitable firms grow faster than other companies. We also suggest that policy-makers improve in public governance quality and the leveling of the playing field for firms in all business sectors to reduce corruption level because firms tend to pay bribes and the time that is wasted on bureaucratic procedures and engage in corrupt practices in an attempt to promote their short-term growth by facilitating transactions in the bureaucratic process.