Firm dynamics in corrupt environments: the case of the BRICS countries

The main objective of this paper is to examine how corruption affects firm dynamics by exploring four key dimensions: financial performance (ROA), asset growth (GA), innovation, and competitiveness (HHI Index). Unlike previous research that typically focuses on one or two dimensions in isolation, our contribution lies in introducing a novel composite indicator, firm dynamic score, constructed through a statistical weighting process to provide a comprehensive view of firm development. Our paper is based on a panel of 945 firms from BRICS countries over the period 2010–2024, which also captures the impact of the COVID-19 pandemic. Using the High-Dimensional Fixed Effects (HDFE) estimator along with additional robustness techniques such as Two-Stage Least Squares (2SLS) and the Two-Step System GMM, we provide a comprehensive empirical assessment of how corruption influences various dimensions of firm dynamics. The results support the Sand the Wheels theory, which posits that corruption acts as a barrier to progress.