Here Comes the Bribe: The Relationship between Bribery and SME Performance

Abstract

The development of small and medium scale enterprises (SMEs) is shaped by the environments where they are located, and the institutions in those environments. Governments can have a positive role in shaping SME development. However, corruption exists especially in countries with weak government institutions. Literatures on corruption and firm performance indicate that corruption can either grease or sand business performance and operations. This paper analyzes this relationship using the survey results of 480 SMEs in the National Capital Region and the CALABARZON Region. This study finds evidence that SME profit growth rate, especially among small-sized firms, and revenue growth rate performance have an inverse association with the firms’ extent of perceived corruption around them. The negative and challenging business environment for SMEs may reflect negatively on the macro-level economic performance of the Philippines as SMEs provide a sizable chunk of employment, gross value added and export revenues, among others, for the country. Because of the large contribution of SMEs to the economy, this finding underlines the need for the country to do reforms such as strengthening government institutions and streamlining bureaucracies to stamp out corruption to improve the business environment for SMEs, especially smaller firms.