Abstract
This paper provides analyses of the effect of corruption in South Asia on (1) credit access for small- and medium-size enterprises (SMEs), and (2) credit constraints faced by female-owned and male-owned SMEs. By addressing potential endogeneity and reverse causality of corruption and credit constraints via instrumental variables, this study reports that corruption has a detrimental effect on credit access. Specifically, corruption increases the probability of SMEs credit constraints by 7.63%. However, gender differences emerge, indicating that bribery is slightly more effective when used by female SME owners. When male-owned SMEs pay bribes, they are on average 0.61% more credit-constrained than their counterparts. For female-owned SMEs paying bribes, they are on average 0.78% more likely to be less credit-constrained compared to female SME owners who do not pay bribes. Overall, bribery is not very effective in achieving the desired outcome and attitudes towards bribery as unethical may be more a question of culture than of gender.
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Notes
The Corruption Perception Index (2016), retrieved from https://www.transparency.org/news/feature/corruption_perceptions_index_201.
The Freedom of the Press Index (2016), retrieved from https://rsf.org/en/ranking.
The Rule of Law Index (2016), retrieved from https://worldjusticeproject.org/our-work/wjp-rule-law-index/wjp-rule-law-index-2016.
The grease the wheels argument postulates that corruption has a positive impact on the economic activities, specifically, when the quality of governance is very low (Méon and Weill 2010).
Although the probit model is used to compare the effect of covariates across groups, the model is based on an assumption that each group has the same residual variations. Allison (1999) and Hoetker (2007) indicate some potential problems. These issues have not been developed in the subsequent literature, indicating no widespread concern with the appropriateness of probit analysis in cross group comparison. Therefore, the probit model is an acceptable robust estimation model to analyse the dichotomous credit constraints variable.
STATA command probexog provides the opportunity to test endogeneity in limited dependent variables model (probit in here).
The World Bank’s Enterprise Surveys offer an expansive array of economic data on 130,000 firms in 135 countries. The World Bank Enterprise Survey website provides details as to how the surveys are conducted (http://www.enterprisesurveys.org). An Enterprise Survey is a firm-level survey of a representative sample of an economy’s private sector. The surveys cover a broad range of business environment topics including access to finance, corruption, infrastructure, crime, competition, and performance measures.
According to the United Nations geographical region classification, South Asia comprises the countries of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. This study excluded Maldives due to data unavailability and also excluded Sri Lanka due to data not being up to date (Sri Lanka Enterprise Survey collected data in 2011).
The Enterprise Surveys undertaken by the World Bank in 2014 categorise South Asian firms having up to 99 employees as SMEs and that is the definition used in this study. Firms with 5–19 employees are small firms, and firms with 20–99 employees are medium size.
Here, female takes value 1 if the firm has at least one female owner.
To preserve space, these results are not reported here, but are available from the corresponding author upon request.
Due to small sample size, Afghanistan regression results are weak and not significant.
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Wellalage, N.H., Locke, S. & Samujh, H. Corruption, Gender and Credit Constraints: Evidence from South Asian SMEs. J Bus Ethics 159, 267–280 (2019). https://doi.org/10.1007/s10551-018-3793-6
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DOI: https://doi.org/10.1007/s10551-018-3793-6