Why Do Firms Bribe?

Abstract

0This 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. 0 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. 0Our 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.

Determinants of Bribery: Theory and Evidence from Sub‐Saharan Africa

“…Lee et al . () find that companies with foreign capital have a lower incidence of bribe payments than locally owned counterparts. Hellman et al .…”

A Bitter Pill? Institutional Corruption and the Challenge of Antibribery Compliance in the Pharmaceutical Sector

“…The firm itself may have external contextual characteristics that make it vulnerable to bribery such as small size, low growth rate (Wu, 2009) and internal factors such as top management team characteristics (Collins, Uhlenbruck, and Rodriguez, 2009) and inadequate corporate governance (Wu, 2009). Alternatively, a firm may be proactive in bribing in order to acquire preferential treatment (Bertrand et al, 2007;Lee et al, 2010;Svensson, 2005;Martin et al, 2007;Rose-Ackerman, 1997). Firms' main motivations in doing so may include seeking access to privileged information (Porta and Vannucci, 1999), credit and other public resources (Barth et al, 2009), relief from heavy regulations and red tape (Rose-Ackerman, 1999), or speedy access to operating permits in highly regulated markets with tight government control (Djankov et al, 2002).…”

Arbitrariness of corruption and foreign affiliate performance: A resource dependence perspective

“…In addition, managers avoid engaging in political strategies when corruption is arbitrary, because, the effectiveness of political activities, which are highly expensive, is difficult to estimate (Hadani & Schuler, 2013). Consequently, bank affiliates may find it difficult to demonstrate conformity and gain acceptance from the institutional environment, and as a result, they may consider alternative ways of achieving external legitimacy (Lee, Oh, & Eden, 2010;Oliver, 1991).…”

“…First, we identify limitations in two of our measures. Measurement of corruption does not capture the actual amount paid in bribes by the affiliate, which is an important trait of corruption (Lee et al, 2010). In addition, we use the average number of expatriate managers to reflect the potential for the affiliate to link more efficiently with the MNB's network.…”