Managers have a strong interest in understanding what kinds of pressure their firms will likely face to engage in corruption in a given host country environment and what they might do to reduce that pressure. Although some have argued that the presence of corruption may increase firms’ efficiency by allowing them to avoid red tape, empirical evidence suggests that firms that encounter prevalent bribery see greater unpredictability and higher costs in business operations (Kaufmann and Wei, 1999; Wei, 1997). Indeed, in a study across 73 countries, Kaufmann and Wei (1999) found that a firm’s payment of bribes corresponded with more management time wasted with government bureaucrats and a higher cost of capital. Thus, instead of facilitating business operations, firms operating in environments in which corruption is prevalent may well see lower economic efficiency. In addition, the costs likely go beyond these immediate inefficiencies to include the negative effect such actions can have on the firm’s image and reputation worldwide.
Posted on: Tue, 08 Oct 2013 06:19:15 +0000
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