The dimensions of corruption and its impact on FDI decision making: the case of Guatemala

Abstract

This study researches how the arbitrariness and pervasiveness of corruption affect the decision-making process and subsequent operations of firms investing in highly corrupt host locations. The results of the analysis demonstrate that firms headquartered in countries where corruption is high have an advantage when operating in a foreign country with a similar institutional environment. The reason for this advantage is that these firms possess knowledge of how to cope with the arbitrary and pervasive dimensions of corruption. Firms from countries with lower corruption levels than the host country, however, are more affected by corruption in a highly corrupt host country. Finally, though this study finds evidence that all firms operating in a highly corrupt country might participate in corrupt deals, those headquartered in highly corrupt countries are more likely to be willing to do so. This claim is based on 12 in-depth interviews with managers with FDI allocation responsibilities of firms operating in a highly corrupt host country. The results show that firms from less corrupt countries face stronger pressures from their headquarters to not engage in corrupt deals, whereas firms from more corrupt countries do not encounter such pressures.

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

“…FDI responds differently to various public policies if the host country is considered developed or developing (Goodspeed, et al, 2013;Godinez & Garita, 2016). Separating home countries based on their quality of institutions can provide a valuable insight into how firms create strategies to deal with corruption abroad.…”

Familiarity Does Not Breed Contempt: Curbing Subsidiary Corruption Through a Legitimacy-Enhanced Ownership Structure

“…First, we extend RDT by offering alternative mechanisms to curb subsidiary-level corruption under conditions of dependence on highly corrupt host governments. While previous literature suggests curbing subsidiary-level corruption should consist of abstaining from working with local governments (Godinez & Garita, 2016), these measures might not be optimal since MNE subsidiaries need government permits and licenses, all the more if the firm needs public contracts for survival. Thus, our results acknowledge that although there are situations in which a firm is dependent on a highly corrupt host government, such firm can still enact mechanisms to reinforce legitimate behavior, which decreases the effect of government dependence.…”

Political extraction and corporate cash holdings in China

“…Second, the study presents a potential contribution to the corruption literature. Prior studies find that corruption influences economic development, social inequity (Méndez and Sepúlveda ; Wu and Zhu ), corporate foreign direct investment, and firm performance (De Rosa et al ; Godinez and Garita ). Our findings suggest that a corruption environment exacerbates political extraction and increases firms’ motivations to shield cash.…”