Corruption and Its Effects on FDI: Analysing the Interaction Between the Corruption Levels of the Home and Host Countries and Its Effects at the Decision-Making Level

Abstract

This study furthers our understanding of how corruption affects the decision-making process of allocating foreign direct investment (FDI). Drawing on the responses of 28 managers in charge of establishing operations in a highly corrupt host country, we argue that those firms based in home countries with low levels of corruption are more proactive in preparing to face corruption abroad than those based in countries with high corruption levels. This means that firms from less corrupt home countries have strategies in place to deal with high corruption abroad. This finding is based on the fact that these firms have stronger pressures to not engage in corruption from their home stakeholders. Also, these firms might not have the experience of dealing with corruption at home, which hinders their potential to deal with corruption abroad. On the other hand, those firms based in highly corrupt home countries do not have clear strategies to deal with corruption abroad. This assertion is based on the fact that these firms might have familiarity in dealing with corruption and thus, might not see it as an obstacle to operating abroad.

Private Sector Corruption, Public Sector Corruption and the Organizational Structure of Foreign Subsidiaries

“…Third, our research has built on the recent work of business ethics scholars who have become more focused upon enhancing our understanding of the various types of corruption that firms encounter in foreign markets (Luiz and Stewart 2014;Van Vu et al 2018), as well as the different strategic, structural and operational responses of MNCs to heightened levels of corruption (Godinez and Liu 2018;Orudzheva et al 2018;Xie et al 2018). In doing so, we extend the body of business ethics scholarship (Clark and Brown 2015;Gago-Rodríguez et al 2018;Gorsira et al 2018;Hauser 2018;Remišová et al 2018) that is generating theory to help inform the efforts of scholars who endeavor to design better corporate anti-corruption strategies and curb MNC engagement in overseas corruption.…”

“…Business ethics scholars have employed the transaction cost lens to develop theory with respect to the impact of ethics-oriented concerns upon the organizational structure (Luiz and Stewart 2014;Robertson et al 2010) and strategies of MNCs (Godinez and Liu 2018;Johnsen 2009;Xie et al 2018). The tenets of transaction cost theory specify distinct types of uncertainty and costs.…”

“…First, we leverage the work of business ethicists' who have advocated in favour of broadening the conceptualization of corruption and elaborating the nature and effects of different types of corruption, particularly private sector corruption and public sector corruption (Argandoña 2003(Argandoña , 2017bGopinath 2008). Second, we extend the work of ethics scholars who have theorized that corruption and the uncertainty that it precipitates may impact the organizational structure of foreign subsidiary investments (Godinez and Liu 2018;Luiz and Stewart 2014). In this regard, Montiel et al (2012) have proposed that different manifestations of corruption may precipitate distinct uncertainties for firms and exert disparate impacts upon firm decision-making.…”

Neutralizing the Threats of The Organization Involvement in Corruption Offenses: Innovations and Technologies

“…It can be stated that corruption in the sector under study affects the virtue of entrepreneurs, fair competition, and the foundations of a market economy [13][14][15]. According to J. Godinez and L. Liu, the essence of corruption in the activities of private enterprises is that financial resources circulating Neutralizing the Threats of The Organization Involvement in Corruption Offenses: Innovations and Technologies outside state and public control have a very dangerous corruption potential [16]. According to researchers, the compliance system is considered to be the main tool for overcoming this type of corruption.…”

Do Countries with Similar Levels of Corruption Compete to Attract Foreign Investment? Evidence Using World Panel Data

“…Whereas a few authors have showed that the distance in corruption levels between the origin and destination countries has a negative impact on the attraction of FDI [20][21][22][23], others, reached opposite results [24]. Recently, new researches highlight the importance of home country corruption in FDI flows [25][26][27][28], suggesting that the direction of the institutional distance matters [29].…”