“What if corruption is a matter of being or not being for family firms”

By Rodrigo Basco and Ramsha S. Khan

This is an interview with Dr. Thomas Bassetti of University of Padua (Italy). Dr. Bassetti published an article in the Journal of Family Business Strategy in collaboration with Dr. Dal Maso Lorenzo and Dr. Lattanzi Nicola entitled: “Family Businesses in Eastern European Countries: How Informal Payments affect Exports”

What has inspired you to write about the topic of corruption and family businesses in Thomasthe Eastern European Countries?

In May 2008, I read an article published by The Economist talking about corruption in Eastern Europe. The title of the article was “Talking of virtue, counting the spoons”. The central point of the article was that the EU enlargement process has generated temptingly puddles of public money to steal. According to the journalist, a more effective approach to fight corruption is the simplification of the public administration. Public administration should be simplified to the point where bribes are either unnecessary or extremely evident.

As an economist, I immediately thought that corruption can be represented as a market characterized by two different sides: the demand side and the supply side. The Business Environment and Enterprise Performance Survey (BEEPS) gave us the opportunity to investigate this hypothesis. In particular, we were interested in exploring under which conditions a firm may be interested in bribing public officials. Usually, bribes are devoted to buying a competitive input or to facilitate an administrative process. In this second case, even a competitive firm may be interested in bribing a civil servant. In particular, a risk-averse firm facing institutional inefficiencies may decide to bribe a public official just to overcome these inefficiencies that threaten its own survival. In this sense, bribes act as an insurance against institutional inefficiencies.

What are the main results of the article published in the Special Issue?

First, when we examine the relationship between corruption and export, it is important to take into account the reasons why firms bribe public officials. Second, in contrast to non-family firms, family firms are particularly sensitive to corruption. Finally, informal payments aiming to facilitate business operations tend to support export-oriented family firms.

What is the theoretical application of your research? What are the future lines of research of this topic?

The main theoretical implication of our research is that risk-aversion plays a role in the willingness to use informal economy channels. So, if family firms are more risk averse than non family firms, the former may be more involved than the latter in informal activities just because of their risk attitude.

Although we provided robust evidence on the causal relationship between the family firms’ demand for bribery and exports in Eastern European economies, given the nature of the dataset, we were not able to distinguish among different compelling explanations for our evidence.  Therefore, a first strand of literature should explore the mechanisms behind our findings. Similarly, a second strand of literature should investigate whether our findings apply only to Eastern European countries or not. In this second case, there could be a minimum level of institutional inefficiencies below which risk-averse firms have no incentive to bribe public officials.

What is the practical application of your research for policy-makers?

Our article has some important implications in terms of anti-bribery policies. According to our results, policy-makers should distinguish informal payments into pure corruption payments (i.e., payments devoted to acquire an additional competitive input) and facilitation payments (i.e., payments devoted to accelerate inefficient administrative procedures). If informal payments are devoted to facilitate business’ operations, before fighting these deplorable practices, policymakers should remove those market and institutional inefficiencies that hamper business operations. This is why facilitation payments are tolerated also in the U.S. In addition, since family firms are the most common form of business entity, this policy intervention may boost family firms’ export, favoring economic growth and development.

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