How corruption affects business results: The case of Croatia

The background of this paper is found in recent theories why corruption prevalence menaces the safety of business environment. In order to examine if exposure to corruption derogates business results of firms in Croatia we have tested the hypothesis that higher corruption perceptions of business leaders in small, medium and large firms in Croatia are associated with firms’ worse financial results. As a seminal research we measure corruption perceptions of business by employing unique data from three annual surveys conducted in more than one hundred firms in Croatia. The constructed index of corruption perceptions of business is used in the empirical analysis how higher corruption perceptions of firms in Croatia are affecting financial results in terms of total revenue per employee, net profit per employee and total sales per employee. The years of observation are 2002, 2003 and 2004. The extension of our research to three groups of small, medium and large firms in Croatia aims to separately examine the correlation between corruption perceptions indices and financial results for each group of firms. The preliminary results indicate that corruption is more affecting small firms in Croatia. Policy recommendations and lines of further research are discussed