The effect of corruption level in steering the business–government relations: evidence from 23 African countries

Abstract

Purpose

The purpose of this paper is to investigate the effect of corruption level in steering the business–government relations (BGRs) in developing countries. It also examines the moderating effect of firm size.

Design/methodology/approach

Using robust tobit and probit models, this study tests the response behavior of 9787 firms from 23 African countries to their government's policy and regulations and the direct effect of corruption control level in their response decisions. The authors also perform several other additional analyses to ensure the robustness of the findings, including change analysis, two-stage model and recursive bivariate model.

Findings

The result shows that corruption level is among the significant factors that drive BGRs exponentially. The finding points out that, there is a strong alliance of business and government in more corrupt countries. Moreover, the impact of corruption level exacerbates when the firm is bigger.

Research limitations/implications

Managers should focus more on activities that create long-term sustainable advantage. Valuable time of the senior managers should not waste on negotiating government policies to earn a short term advantages.

Practical implications

It is evident that legal and transparent government alliances can lead to economic rent for firms. However, it is important to note that any alliance based on corruption and illegality is short-lived and ultimately detrimental to long-term prosperity. Therefore, it is crucial for firms to prioritize ethical business practices and build relationships with governments that prioritize transparency and accountability.

Social implications

Given the detrimental impact of corruption on economic progress, it is crucial for Africa policy-makers to prioritize reforms aimed at reducing its adverse effect. By implementing ethical and transparent business practices, countries can attract more investment and promote economic growth.

Originality/value

This study contributes to the existing literature on the passive form of political connectivity/activity and to what extend corruption level affect the political activities of firms.

Citation

Tesfagebreal, M., Chang, L., Tuo, S.J. and Qian, Y. (2023), "The effect of corruption level in steering the business–government relations: evidence from 23 African countries", Asian Review of Accounting, Vol. 31 No. 5, pp. 733-753. https://doi.org/10.1108/ARA-10-2022-0242