Abstract
Increasingly high expectations for environmental, social, and governance (ESG) sustainability have become an important issue for companies operating in an unpredictable institutional context. This problem is especially critical for post-Soviet countries that have not yet been able to strengthen their institutions due to corruption. However, the role of corruption in the innovation-sustainability relationship remains underexplored. Although, according to the "sand-the-wheel" approach, corruption negatively affects business performance through inefficiency and uncertainty, the "grease-the-wheel" approach suggests that this negative impact may be reversed if corruption helps business activities in an inefficient bureaucratic environment. Based on the Institutional Theory, the Agency Theory, the Transaction Cost Economics, and the Resource-Based View, this study explores the effect of a weak institutional environment on firm performance, the impact of corruption on the worsening of the principal-agent problem, informal payments made to decrease transaction costs, and firm innovation capacity that helps to become sustainable. For this purpose, firm-level data from the World Bank Enterprise Survey of 2023-2024 were obtained, and a stratified random sampling method was used with a particular regression estimation technique. It was found that corruption had a statistically significant negative influence on firms' sustainability efforts, supporting the "sand-the-wheel" concept. However, corruption also had a positive influence on firms' innovation capacity - thus, a "grease-the-wheel" effect can be assumed in the post-Soviet context, characterized by an inefficient bureaucratic system and a weak institutional environment. Innovation, in turn, positively influences firms' sustainability efforts.