Managerial quality, business liberalization and corruption: the case of Turkey

Does corruption affect the adoption of better management practices? Corruption today is not falling in all countries or all sectors and the impact of corruption on a firm’s performance, and its underlying mechanisms, need to be assessed. Management is one of those mechanisms as quality of management is strongly linked to a firm’s performance. This paper investigates whether the local dimension of corruption can explain differences in managerial quality. Turkey is a good candidate for this empirical assessment for various reasons, at least the widespread perception of corruption. We find that corruption explains substantially the differences in managerial quality across Turkish regions, and between the Turkish regions and the Istanbul area. The release of BEEPS V is utilized for years 2012-2014. The results show that to assess the effects on managerial quality one needs to consider the regional dimension of corruption, the competition that comes from the informal sector and the firm-state linkage. The effects of corruption is quite different in at least two areas of the country, within and outside Istanbul, because of the competition from informal sector and the public procurement strategies. This has some policy implications. When formal firms compete with informal or semi - with formal firms, any kind of anti-corruption policies in Turkish regions must be complemented with interventions that encourage exiting from the informality trap. The same policies in Istanbul must take into consideration the different perception about corruption and the different kinds of interactions between private firms and the governmental authorities. This implies different strategies to cope with corruption. Any anti-corruption policies that do not take these differences into consideration are likely to have a negative rather than a positive effect on firm performances.