Does Grease Money Buy Influence Rent? Bribery and Firm Performance in Africa and Latin America

Do bribes buy influence rent? While a lot is known about the antecedents and consequences of legal influence strategies, little is known about the drivers and consequences of illegal influence strategies (corruption) on firm performance. By using a unique database that measures experience based bribery by firms in Africa and Latin America, we find that small and domestic firms are more likely to pay bribes and pay a relatively higher proportion of their revenue to corrupt officials. Because bribery transaction is not legally enforceable, it increases the search cost and risk of opportunism. As a result, paying bribes increases the odds of accessing government resources, but reduces long-term firm growth by deterring investment.