Effects of Bribery on Firms' Environmental Innovation Adoption in Vietnam: Mediating Roles of Firms' Bargaining Power and Credit and Institutional Constraints

Abstract

This paper uses survey data of small and medium-sized enterprises (SMEs) in Vietnam, from 2011 to 2015, to examine the effects of bribery on environmental innovation decisions by firms, accounting for the roles of bargaining power and/or credit and institutional constraints. In the study, bribery activities are categorized into greasing and rent-seeking forms. Self-assessment of firms on the uncertainty of government policies and the competition environment is used to capture institutional constraints, while firm size and legal registration status are used to represent bargaining power. The group of credit-constrained firms is further broken down into those that have demand for more loans and those not currently looking for a loan application. Our empirical results provide evidence that greasing bribery has a positive effect on firms' decisions about implementation of environmental innovation (the “greasing-the-wheels” hypothesis) while there is no impact from rent-seeking bribery. The positive effect of greasing bribery is particularly sizable for large, formally registered firms, or those facing no credit constraints, while specific types of institutional constraints that firms perceive as obstacles to their growth also affect the magnitude of the impact. Lastly, when endogeneity is controlled, the effect of greasing bribery becomes more pronounced and there is evidence on the “sanding-the-wheels” hypothesis of rent-seeking bribery.