This study investigates the influence of formal and informal institutions on firm innovation in transitional economies of Central and Eastern Europe (CEEs) by explicitly differentiating between corruption and bribery as distinct informal institutions. We integrate institutional theory and legitimacy theory to explain that the failure of formal institutions creates an environment of corruption which encourages firms to use bribes to facilitate economic exchange. We test our hypotheses on the innovation performance of a sample (n = 1603) of firms in 11 (...) CEEs. The results show that weak rule of law and ineffective business regulations in CEEs propagate the perception of corruption that inhibits firm innovation. However, the use of bribery enables firms to transform this environment of corruption into innovation outcomes. The policy and managerial implications of our research for differentiating between corruption and bribery and our findings that bribery acts as the glue that binds formal and informal institutions are fully discussed. (shrink)

Many scholars and activists favor banning illicit businesses, especially given that such businesses constitute a large part of the global economy. But these businesses are commonly operated as if they are subject only to the ethical norms their management chooses to recognize, and as a result they sometimes harm innocent people. This can happen in part because there are no effective legal constraints on illicit businesses, and in part because it seems theoretically impossible to dispose definitively of arguments that support (...) moral relativism. Progress is being made, however, towards a “second best” arrangement consisting of widespread institutional agreements regarding ethical norms. This development might eventually enable us to transcend moral relativism in some respects. Indeed, although some business ethicists who examine illicit business practices accept moral relativism, others attempt to surmount it. The latters’ endeavor, I show, is cross-cultural in nature in that it involves businesses that are deemed illicit in at least one but not every culture. I then recall some traditional solutions and their limits: ideological teachings are culture-specific, hence both temporally and spatially limited; legal constraints, though potentially helpful, are too diverse hence often narrow in reach. Especially problematic are defense industry businesses, which are inherently transcultural and, though uniquely harmful, are not effectively banned in any culture. Harm to quality of life (QoL) can, however, be measured. So I recommend institutional support for international human rights tied to QoL data as a workable way to counter moral relativism regarding illicit businesses. (shrink)

This research investigates firms’ bribery motivations in China. Based on resource dependence theory and anomie theory, we identify resource conditions as firms’ proactive motivation to bribe and firms’ perceived institutional environment as their passive motivation to bribe. We use the data from 2002 World Business Environment Survey, collected by the World Bank, to investigate firms’ bribery in the world’s largest emerging market, China. We employ a multi-level logistic model to test our hypotheses. The results show that unsatisfactory general and task (...) environmental conditions may trigger firms to bribe in order to compete for better resources and opportunities; institutional conditions such as the security expenditure and anomie climate may make firms perceive bribery as a common phenomenon and thus induce firms to bribe. This research provides some insights to understand business bribery behaviors in emerging market. It also discusses some managerial implications and guidelines for policy-making from the findings. (shrink)

This study examines the degree of state ownership on corporate bribery. Integrating the theories of state ownership and corporate corruption, we propose that state ownership influences bribery propensity and bribery intensity in different ways; it lowers a firm’s tendency to pay bribes but increases the relative amount of bribery payment. Building on the control rights/bargaining hypotheses, we demonstrate that state ownership shields firms from bribery demands by reducing administrative hurdles that include bureaucratic requirements of obtaining licenses or settling taxes in (...) business operations. However, state ownership elevates the level of bribes by weakening their capital mobility. Using a sample of 23,018 firms from 54 countries covering 2006 to 2013, we find evidence to support our hypotheses. This article contributes to corruption research by drawing attention to an important channel of corruption and by highlighting the importance of considering not only the propensity but also the intensity of bribe payments. (shrink)

Corruption has been a major obstacle to economic growth around the world. In this paper, we examine how firms interact with corrupt government officials either to minimize the impact of corruption on their operations or to maximize their benefit of paying a bribe. Our estimates show that firms know exactly what they need and use their limited resources to bribe only relevant government authorities. In other words, firms are rational bribers who know exactly what they need and optimize their bribes (...) to fulfill that need. This type of intentional bribery could be reduced by enhanced institutional environments and improved openness of the economy. (shrink)

Many studies of bribery acknowledge the important role of bribe-givers, but their true motives remain unclear. We propose that the likelihood of bribery depends on the willingness of an organization to affiliate with local parties or to be successful in a host country, or to have power over local parties. We further argue that different opportunities, either pervasive or arbitrary, facilitate different types of motives that affect the likelihood of bribery. In addition, we investigate the effect of perceived fairness on (...) the likelihood of bribery. We employ a 3 (motives: affiliation vs. achievement vs. power) × 2 (opportunities: pervasiveness vs. arbitrariness) × 2 (perceived fairness: high vs. low) factorial design in experimental settings among Executive MBA students in southern Taiwan. Our findings indicate that, when companies perceive a higher level of distributive fairness, high-achieving organizations are more likely to offer a bribe when the condition is pervasive. When they have a powerful motive, arbitrariness engenders a higher likelihood of bribery. When they perceive less distributive fairness, there are no significant differences between motive and opportunity. (shrink)

Our paper draws attention to a neglected channel of corruption—the bribe payments by state-owned enterprises. This is an important phenomenon as bribe payments by SOEs fruitlessly waste national resources, compromising public welfare and national prosperity. Using a large dataset of 30,249 firms from 50 countries, we show that, in general, SOEs are less likely to pay bribes for achieving organizational objectives owing to their political connectivity. However, in deteriorated institutional environments, SOEs may be subjected to potential managerial rent-seeking behaviors, which (...) disproportionately increase SOE bribe propensity relative to privately owned enterprises. Specifically, our findings highlight the importance of fostering democracy and rule of law, reducing prevalence of corruption and shortening power distance in reducing the incidence of SOE bribery. (shrink)

We investigate how paying a bribe or refusing a bribe differs between observing others doing this or committing such acts oneself. Study 1 examines how and when observing others paying a bribe or refusing a bribe leads to actions opposing bribery or supporting anti-bribery. The how question is answered by showing that positive and negative emotions mediate such responses; the when question is answered by demonstrating that empathy and the social self-concept constitute personal conditions for regulating such effects. Study 2 (...) scrutinizes how and when paying a bribe or refusing a bribe leads to actions reducing bribery. Here the mediators pride and shame, and the social self-concept again regulates such effects. Actual managers are the respondents in these two field experiments, with 140 men and women in Study 1 and 207 men and women in Study 2. (shrink)

We examine the impact on firm bribery of two corporate governance devices heavily studied in corporate governance research—i.e., separation of ownership and control, and equity share of the largest shareholder. In addition, we investigate the impact of the principal–owner’s gender on firm bribery. From agency theory, we predict that firms with the owner also acting as a manager (owner–manager) are more likely to engage in bribery compared to their counterparts with separation of ownership and control. We argue that an increase (...) of the equity share of the largest shareholder can either increase or decrease firm bribery likelihood depending on the net cost-benefit effect of such bribery actions. In addition, we predict that bribery is more likely to occur when the principal–owner is male rather than female. Using a rich dataset of the World Bank Enterprise Surveys of 2002–2005, we find that the equity share of the largest shareholder is negatively and male principal–owner is positively associated with the likelihood of firm bribery. Furthermore, we reveal that owner–manager is more likely to bribe when the principal–owner is male rather than female. We also observe that the effect of owner–manager is smaller as the equity share of the largest shareholder increases. (shrink)

Using a sample of 15,174 firms from 24 countries included in the 2009 World Bank Enterprise Survey, we investigate the impact of disclosure standards and auditing infrastructure on the bribery of public officials to secure government contracts. We find that firms are less likely to grant gift to secure a government contract in countries having more extensive financial reporting requirements and countries where audit firms face a higher litigation and sanction risk. Findings also show that firms are less likely to (...) bribe bureaucrats in case financial statements are reviewed by an external audit firm. Our results are economically significant and are robust to several sensitivity analyses. These findings support certain policies that are currently being implemented or discussed to mitigate bribery within the public sector across the globe. (shrink)

This study explores the rationality behind firms’ decision to admit or deny their involvement in bribery when responding to confidential surveys conducted by international agencies. Specifically, we posit that firms’ reluctance to provide accurate information about their engagement in bribery is at least to some extent contingent on certain situational factors. In other words, we claim that this behavior is context dependent. The paper uses the notions provided by the theory of planned behavior to understand the way in which the (...) corruption of the legal environment, the intensity of market competition, and identification risk influence firms’ decision to lie about their involvement in bribery. To test these notions, we use databases from the fifth wave of the EBRD-World Bank Business Environment and Enterprise Performance Survey, country-level data from the Kauffman Foundation and macroeconomic information from the World Bank database. We run ordinary least squares with geographic region-clustered standard errors on data from 30 countries and 6122 individual firms during the period 2012–2013. Consistent with our expectations, the results indicate that firms operating within more corrupt legal environments, facing more competition, and bearing a higher risk of being identified are less likely to deny their involvement in bribery. We conclude that not all firms have the same incentives to lie about their participation in bribery, and therefore, identifying the drivers of this heterogeneity may help policymakers better assess the reliability of bribery information collected through confidential surveys. (shrink)

We examine the impact on firm bribery of two corporate governance devices heavily studied in corporate governance research—i.e., separation of ownership and control, and equity share of the largest shareholder. In addition, we investigate the impact of the principal—owner's gender on firm bribery. From agency theory, we predict that firms with the owner also acting as a manager (owner-manager) are more likely to engage in bribery compared to their counterparts with separation of ownership and control. We argue that an increase (...) of the equity share of the largest shareholder can either increase or decrease firm bribery likelihood depending on the net cost-benefit effect of such bribery actions. In addition, we predict that bribery is more likely to occur when the principal— owner is male rather than female. Using a rich dataset of the World Bank Enterprise Surveys of 2002-2005, we find that the equity share of the largest shareholder is negatively and male principal—owner is positively associated with the likelihood of firm bribery. Furthermore, we reveal that owner—manager is more likely to bribe when the principal— owner is male rather than female. We also observe that the effect of owner—manager is smaller as the equity share of the largest shareholder increases. (shrink)