Family businesses in Eastern European countries: How informal payments affect exports

• The role of corruption in the internalization of family firms is explored.
• Family firms are more sensitive to corruption.
• Informal payments related to business operations boost the exports of family firms.
• Non-exporting firms tend to pay informal costs to secure public contracts.
• Institutional inefficiencies hamper the competitiveness of family firms.

This article investigates the effect of corruption on the export share of family firms in Eastern European countries. Using the Business Environment and Enterprise Performance Survey and panel data methods, we find that, in contrast to non-family firms, family firms are rather sensitive to corruption. In particular, the export share of family firms is positively associated with informal payments that aim to facilitate business operations. There are at least three compelling explanations for these results. First, if family firms are more risk averse than non-family firms, informal payments may represent additional export risk insurance. Second, informal payments may help family firms compensate for the lack of managerial capabilities to export. Finally, when institutional inefficiencies obstruct business, corruption may be a tool for family firms to protect their socioemotional wealth.