Rent-Seeking and Firm Performance: Do Institutional and Firm-Specific Characteristics Matter?

Abstract This paper looks at the differential impact of bribery and lobbying onto the productivity of firms using data from 28 Eastern European and Central Asian economies. It is hypothesized that since the intent of lobbying is fundamentally different from that of bribery their consequences may differ. The empirical results reveal that while lobbying increases firm performance, bribery decreases it. Also, there is a need to improve institutions to mitigate some of the negative effects of bribery onto firm performance. As far as firm-level characteristics are concerned larger sized-, service sector- and exporter-firms need to be particularly shielded from bribery practices as the negative impact of bribery onto these types of firms are more pronounced. On the other hand, lobbying is found to be more successful for larger-, export oriented- and older firms, implying that such firms need to be encouraged to collaborate and forward valuable information for effective policy making.