The Shareholder–Manager Relationship and Its Impact on the Likelihood of Firm Bribery

Abstract

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 costbenefit effect of such bribery actions. In addition, we predict that bribery is more likely to occur when the principalowner 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 principalowner 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.

Does gender influence managers’ ethics? A cross‐cultural analysis

“…This finding is similar to those of previous related studies. For example, Ramdani and van Witteloostuijn () found that male principal owners of firms were more likely to engage in bribery than their female counterparts are. Furthermore, Swamy et al .…”

Are Manager-controlled Firms More Likely to Bribe than Shareholder-controlled Firms: A Cross-cultural Analysis

“…For example, Clarke and Xu (2004) used samples from Eastern Europe and Central Asia and found that profitable firms are more likely to bribe. Ramdani and van Witteloostuijn (2012) reported that the separation of ownership and control is associated with a firm's likelihood to bribe. In addition, firm characteristics, such as growth rate, firm size, and corporate governance, are important factors when predicting firm bribery activity (Wu, 2009).…”

“…Agency theory suggests that the conflict between the principle and the manager of a firm comes from the different goals of these two parties. For a firm's board of directors, the main goal is to protect shareholders' interests and maximize the value of the firm (Ramdani & van Witteloostuijn, 2012); they are more interested in pursuing strategies for long-term profits. For shareholders, although bribery might bring them short-term profits, engaging in bribing activities might also jeopardize the long-term interests of the firm.…”

“…On the other hand, managers' natural inclination is to allocate the firm's resources for their own benefits (Jensen & Meckling, 1976) and to maximize their private interests (Ramdani & van Witteloostuijn, 2012) at the expense of others (even …”

Enterprises Dealing with Corruption: A Microeconomic Analysis

“…However, the study does not address completely how the different kinds of corruption and lobbying interact with each other. Ramdani and Witteloostuijn (2012) predict that bribery is more likely to occur when the principal-owner is male rather than female. Using the World Bank Enterprise Surveys of 2002-2005 they found that the equity share of the largest shareholder is negatively related with the likelihood of firm bribery.…”