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Management International Review

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01.12.2010 | Research Article

Why Do Firms Bribe?

Insights from Residual Control Theory into Firms’ Exposure and Vulnerability to Corruption

verfasst von: Assoc. Prof. Seung-Hyun Lee, Asst. Prof. Kyeungrae Oh, Prof. Lorraine Eden

Erschienen in: Management International Review | Ausgabe 6/2010

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Abstract

This study answers the questions of why firms bribe government officials and why some firms pay higher bribes than other firms. Using insights from residual control theory, we examine how governments exercise residual rights of control through regulation or state ownership of firms, and how these rights affect the payment and size of bribes by firms.
We argue that firms vary in their exposure and vulnerability to residual rights of control by government officials, depending on the firms’ characteristics and circumstances. Differences in firms’ exposure and vulnerability to corruption affect their threat point (i.e. ability to walk away) and thus affect which firms pay bribes and bribe size.
Our results show that, at the firm level, bribe size depends on how much a government can exercise residual rights of control and the firm’s threat point. At the same time, at the country level, the type of corruption matters; pervasive corruption is positively related, while arbitrary corruption is negatively related, to bribes paid.

Vorheriger Artikel Captive Offshoring of New Product Development in Brazil

Nächster Artikel The Impact of Regional Trade Agreements on the Global Orientation of Emerging Market Multinationals

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We do not include legal ways of affecting government officials such as facilitating payments specified in the Foreign Corruption Practices Act (1997) in the United States.

We are indebted to a reviewer who asked us to consider the difference between exposure and vulnerability.

In this study, we mainly focus on home country government officials. One potential exception is when we consider the level of foreign ownership. From the foreign partner firm’s standpoint the government can be viewed as the host country government.

At the same time, we recognize that firms with little bargaining power may be more likely to voluntarily pay bribes, particularly if they see the reciprocal private benefits as essential to doing business in that country or industry. Voluntary bribes, in this case, become “good faith” payments that help build long-term relationships with government officials.

These two variables, age and size, are separate and do not load into one variable using confirmatory factor analysis. Thus, they may capture distinct aspects of firm visibility respectively.

The multiple imputation procedure (Rubin 1987) replaces each missing value with a set of plausible values, instead of filling in a single value for each missing value that represents the uncertainty about the right value to impute. We imputed missing values, around 30% of sample, with new values by multiple imputation (MI) procedures (Newman 2003; Royston 2005). Extant research shows that the multiple imputation estimator is not only more efficient with a smaller standard error but also larger in the magnitude of the effect parameter compared to other substitutions such as list wise deletion, linear interpolation or a single imputed value (Allison 2002; Brownstone and Valletta 2001; King et al. 1999; Newman 2003).

To see if multiple imputation is effective, we compare the equality of distribution function of the bribe money in the final sample with that of the original sample, using the two sample Kolmogorov-Smirnov test (Siegel and Castellan 1988; Westphal 1999). The results show that the two samples are not different from each other (p-value = 0.254).

Sartori (2003) shows that if two equations have the same variables and the variables have substantially the same influence on selection and second-stage dependent variable, then the Heckman procedure faces a problem of having to estimate the effect of the variables and functions of the same variables on the dependent variable. The recommended correction is the exclusion restriction; that is, add another more meaningful variable in the first stage selection equation that is not included in the second stage equation.

In order to determine whether the relationships between bribery and the organizational and country characteristics were robust to the type of country, we repeated our econometric analyses (not shown) by splitting our firms in subsamples of more and less corrupt countries, based on the CPI provided by Transparency International. The results show that the more corrupt subsample has more consistent and significant effects in the main relationships than the less corrupt subsample, providing additional support for our hypotheses. Results are available from the authors on request.

We also used export cost based on the Doing Business Survey data (2005) as an alternative measure of the export tax as a robustness check and we do not find any qualitative differences of the results.

For example, in Somalia, anybody can shoot a person, but only a few (e.g. doctors and nurses) can save a person’s life. Especially given that who will gain is uncertain, it would be important to bribe all stakeholders in such an environment.

The WBES dataset does not have data on firm imports; as a result, we could not investigate the relationship between import intensity and bribe size.

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Titel: Why Do Firms Bribe?
Insights from Residual Control Theory into Firms’ Exposure and Vulnerability to Corruption
verfasst von: Assoc. Prof. Seung-Hyun Lee
Asst. Prof. Kyeungrae Oh
Prof. Lorraine Eden
Publikationsdatum: 01.12.2010
Verlag: SP Gabler Verlag
Erschienen in: Management International Review / Ausgabe 6/2010
Print ISSN: 0938-8249
Elektronische ISSN: 1861-8901
DOI: https://doi.org/10.1007/s11575-010-0057-9

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