The Impact of Bribery Relationships on Firm Growth in Transition Economies.

This study examines how bribery relationships—defined as repeated interactions between firms and rent-seeking government officials—negatively affect firm growth in transition economies characterized by institutional voids. It finds that such bribery relationships impose hidden costs on firms through time and effort spent acquiescing to extortion beyond bribe payments, with more severe damage for firms without new products. The study also shows that the detrimental impact of bribery relationships on firm growth is intensified under pervasive corruption but mitigated in countries with high-quality governance, where sound regulations and moral costs reduce firms' dependence on corrupt officials. Using firm-level data from the Business Environment and Enterprise Performance Survey and country-level World Governance Indicators across 28 Eastern European countries (2002–2014), the research highlights the multifaceted nature of bribery and its interaction with institutional environments. These findings underscore the importance of institutional quality and firm innovation strategies in addressing the costs of corruption.