State Ownership and Corruption

Billon, Steve and Gillanders, Robert (2014): State Ownership and Corruption.

Abstract

Using data from the World Bank's Enterprise Surveys, we test two interesting results that emerge from the theoretical model presented in Shleifer and Vishny (1994) that studies bargaining between politicians and managers of state-owned firms. Shleifer and Vishny's model suggests that firms with more state ownership should tend to pay less in bribes but not have a different experience of costly obstacles imposed on them by politicians. In our full sample, the results suggest that a one percent increase in state ownership is associated with a $125 reduction in the total annual informal payment of the firm and with a 0.5% decrease in the probability that a firm will consider corruption to be an obstacle to their current operations. We refine these average relationships somewhat by splitting the sample by global region. Only in our Europe and Central Asia sample do we find strong evidence in support of the first result and in this sample we find a signifcant effect of state ownership on obstacles. In our Sub-Saharan Africa and Latin America and Caribbean samples we do not find a significant effect on either corruption outcome.

• Item Type: MPRA Paper
• Language: English
• Keywords: state ownership, corruption, privatisation, bribery
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L32 - Public Enterprises ; Public-Private Enterprises; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out; P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P31 - Socialist Enterprises and Their Transitions

References

Ades, A. and Di Tella, R. (1999). Rents, competition, and corruption, American economic review 89(4): 982-993.

Arikan, G. G. (2008). How privatizations affect the level of perceived corruption, Public Finance Review 36(6): 706-727.

Birdsall, N. and Nellis, J. (2003). Winners and losers: Assessing the distributional impact of privatization, World Development 31(10): 1617-1633.

Bjorvatn, K. and Soreide, T. (2005). Corruption and privatization, European Journal of Political Economy 21(4): 903-914.

Bose, N., Capasso, S. and Murshid, A. (2008). Threshold effects of corruption: Theory and evidence, World Development 36(7): 1173-1191.

Boubakri, N., Cosset, J. P. and Smaoui, H. (2009). Does privatization foster changes in the quality of legal institutions?, Journal of Financial Research 32(2): 169-197.

Breen, M. and Gillanders, R. (2012). Corruption, institutions and regulation, Economics of Governance 13(3): 263-285.

Clarke, G. R. G. and Xu, L. C. (2004). Privatization, competition, and corruption: How characteristics of bribe takers and payers affect bribes to utilities, Journal of Public Economics 88(9-10): 2067-2097.

Eckel, C., Eckel, D. and Singal, V. (1997). Privatization and efficiency: Industry effects of the sale of british airways, Journal of Financial Economics 43(2): 275-298.

Estrin, S., Hanousek, J., Kočenda, E. and Svejnar, J. (2009). The effects of privatization and ownership in transition economies, Journal of Economic Literature 47(3): 699-728.

Fan, C., Simon Lin, C. and Treisman, D. (2009). Political decentralization and corruption: Evidence from around the world, Journal of Public Economics 93(1-2): 14-34.

Gillanders, R. (2014). Corruption and infrastructure at the country and regional level, Journal of Development Studies . forthcoming. URL: http://www.tandfonline.com/doi/abs/10.1080/00220388.2013.858126

Gupta, N. (2005). Partial privatization and firm performance, The Journal of Finance 60(2): 987-1015.

Habib, M. and Zurawicki, L. (2002). Corruption and foreign direct investment, Journal of International Business Studies 33(2): 291-307.

Hellman, J. S., Jones, G., Schankerman, M. and Kaufmann, D. (2000). Measuring governance, corruption and state capture: How firms and bureaucrats shape the business environment in transition economies, Policy research working paper 2312, The World Bank.

Kaufmann, D. and Siegelbaum, P. (1997). Privatisation and corruption in transition economies, Journal of International Affairs 50(2): 419-458.

Koyuncu, C., Ozturkler, H. and Yilmaz, R. (2010). Privatization and corruption in transition economies: A panel study, Journal of Economic Policy Reform 13(3): 277-284.

Megginson, W. L. and Netter, J. M. (2001). From state to market: A survey of empirical studies on privatization, Journal of Economic Literature 39(2): 321-389.

Shleifer, A. (1998). State versus private ownership, Journal of Economic Perspectives 12(4): 133-150.

Shleifer, A. and Vishny, R. W. (1994). Politicians and firms, Quarterly Journal of Economics 109(4): 995-1025.

Svensson, J. (2003). Who must pay bribes and how much? Evidence from a cross section of firms, Quarterly Journal of Economics 118(1): 207-230.

Svensson, J. (2005). Eight questions about corruption, The Journal of Economic Perspectives 19(3): 19-42.

Tanzi, V. and Davoodi, H. (1997). Corruption, public investment, and growth, IMF Working Paper WP/97/139, IMF.

Wei, S.-J. (2000a). How taxing is corruption on international investors?, Review of economics and statistics 82(1): 1-11.

Wei, S.-J. (2000b). Local corruption and global capital flows, Brookings Papers on Economic Activity 31(2): 303-346.