Expected corruption and business formation
| DOI | https://doi.org/10.1108/JEPP-06-2013-0026 |
| Date | 14 October 2014 |
| Published date | 14 October 2014 |
| Pages | 292-305 |
| Author | Noel Campbell,Adriana S. Cordis |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Expected corruption and
business formation
Noel Campbell
EFIRM, University of Central Arkansas, Conway, Arkansas, USA, and
Adriana S. Cordis
Johnson College of Business and Economics,
University of South Carolina Upstate, Spartanburg, South Carolina, USA
Abstract
Purpose – The purpose of this paper is to investigate whether public corruption influences
entrepreneurial activity in the USA. Because the true underlying level of corruption is inherently
unobservable, it cannot be factored into business venturing decisions. The authors hypothesize,
therefore, that new business venturing should be related to the expected corr uption level.
Design/methodology/approach – The authors follow Cordis (2009) to calculate the expected rate of
public corruption given observed levels of public corruption. The authors embed the expected level
of corruption in a relatively standard model of business venturing, which the authors estimate using
a cross section of the US states covering the period of 1986-2009.
Findings – Using a relatively standard model of business venturing that accounts for variation in
predicted corruption levels, the authors find that entrepreneurs launch more businesses in states with
higher predicted corruption.
Originality/value – Tothe knowledge, no one has previouslytested the impact of expectedcorruption
on entrepreneurial activity.
Keywords Start-ups, Entrepreneurial action, Corruption
Paper type Research paper
1. Introduction
Public corruption is typically defined as the use of political office or government power
to secure an illegal private gain. It has been an ongoing problem for centu ries, and
continues to plague countries around the globe. The last two decades have seen a surge
in academic research on public corruption. Some of the key findings from this literature
are that corruption limits investment, hinders economic g rowth, and alters the
composition of government spending. However, only a handful of studies investigate
the economic impact of public corruption in the USA, and even fewer examine linkages
between public corruption and new business venturing. One notable exception is
Mitchell and Campbell (2009) which shows that public corr uption has a statistically
significant impact on entrepreneurial activity.
Mitchell and Campbell (2009) measure state-level public corruption using the
number of public officials in the state convicted for corrupt acts in federal courts.
Although this measure has been used extensively in the corr uption literature (see, e.g.
Fisman and Gatti 2002; Adsera et al. 2003; Glaeser and Saks 2006; Alt and Lassen 2008;
Leeson and Sobel 2008; Johnson et al. 2011), it is cle arly a noisy proxy for the tr ue,
underlying level of corruption. Because the true corr uption level is inherently
unobservable, entrepreneurs cannot factor it into their business venturing decisions.
At best, they can incorporate their expectations about corruption into these
decisions. We hypothesize, therefore, that new business venturing should be related
to the expected corruption level. To test this hypothesis, we need an econometric
specification that links the underlying corruption level to observed corruption
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Received 29 June 2013
Revised 5 July 2013
Accepted 8 July 2013
Journal of Entrepreneurship and
Public Policy
Vol. 3 No. 2, 2014
pp. 292-305
rEmeraldGroup PublishingLimited
2045-2101
DOI 10.1108/JEPP-06-2013-0026
292
JEPP
3,2
To continue reading
Request your trial