Quality of firms'management and corruption in Turkey

Does corruption affect the adoption of better management practices? Research suggests that firms that apply good management practices perform significantly better than those that do not. In many countries, especially less advanced, management practices were traditionally affected by significant administrative burden from public regulations and corruption. This has changed a lot with either extensive national or specific reforms. However, corruption today is falling not in all countries or all sectors, and even the most successful reformers still tend to have high levels of corruption. The impact of corruption on firm performance and the associated underlying mechanisms need to be assessed. Management is one of such mechanisms as quality of management is strongly linked to firm performance. Turkey is a good candidate for this empirical assessment for various reasons. The importance of fighting corruption has been recently strongly underlined for Turkey. The perception of corruption is widespread and the impact of this perception on business environment and managerial quality has not been assessed yet despite several Action Plans. This paper investigates whether the local dimension of administrative corruption (bribe tax) can explain differences in managerial quality in Turkey. We find that it does explain substantially the differences in managerial quality across Turkish regions and between the Turkish regions and the Istanbul area. The latest release of BEEPS V is utilized for years 2012-2014. The results show that any effects on managerial quality needs to consider the regional dimension of administrative corruption, the competition that comes from informal sector and the firm-state linkage. The effects of corruption is quite different at least in 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 informal or semi - formal firms compete with formal firms, any kind of anti-corruption policies in Turkish regions must be complemented with policy interventions encouraging the exit from the informality trap. The same policy in Istanbul must take into considerations the different firm level perception of corruption and the different interactions between private firms and the governmental authorities. This implies different firm level strategies to cope with corruption linkages. Any anti-corruption policies that do not consider these particular strategies, may affect negatively rather than positively firm performances.