What is it about?
The general consensus in the literature is that corruption has negative macro- (i.e., country-level) effects on all economic activities. However, its consequences for firm activities are less clear. I focus on the effects of bribery on firms' probability to introduce new products in emerging markets. I argue that in these environments bribery provides a beneficial alternative for innovators to circumvent bureaucratic obstacles, the lack of favorable political and kinship affiliations, and the risks stemming from endemic political volatility. As a result, firm bribery will impact positively (grease) new product introduction in these markets. Moreover, I expect that this greasing relationship to depend on the quality of formal (i.e., rules and regulations) and informal (i.e., societal trust) institutions in place. Empirical analysis of a dataset of more than 6,000 firms in 30 emerging markets supports these conjectures.
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Why is it important?
Corruption has significant effects worldwide (e.g., estimated about 1.5 trillion USD annually) and there are significant efforts in combating its negative effects on economies or many emerging markets. Bribery constitutes a form of petty corruption (i.e., small payments directed to lo-ranked public officials) which is commonly used by firms in these environments. This study provides some insights on the strategic uses of bribery for benign reasons (i.e., circumvent arbitrary bureaucratic obstacles, hedge against political risk or compensate for the lack of affiliations) with a positive objective (i.e., a timely introduction of their new products in the market). It also showcases the importance of both formal and informal institutions in curbing the appeal and efficiency of such non-market strategies in emerging economies. In terms of implications, while these results suggest that bribery is often a second-best alternative in these contexts, addressing some of its determinants (i.e., reducing bureaucracy for innovating firms,, facilitating non-discriminatory access to public resources, reducing the power of bureaucrats and politicians) and inhibitors (i.e., raising public awareness, greater transparency on treatment of corruption cases) should be combined for best policy results.
Perspectives
Corruption remains a contentious and under-explored area of research, particularly at the level of the firm. Further studies can adopt various strategies to extend the literature in several directions. First, my results suggest that the two opposite views on corruption (greasing and sanding) may actually co-exist at different levels of analysis. It would be interesting to see whether this co-existence is present also in the case of other economic outcomes and levels of analysis. Second, the estimated coefficients suggest that the benefits of bribery may have a non-linear component, although a weak one in this context. Future studies could contemplate in more detail this hypothesis and explore some potential theoretical explanations for this effect. Third, opening up the blackbox of bribery and distinguishing between benign (e.g., those emphasized in this study) and other, more malign reasons to employ it (e.g., fend-off competitors, deploy low-quality or even hazardous products illicitly, etc.), could provide a more comprehensive picture of the strategic and ethical aspects of employing bribery.
Sorin Krammer
University of Leeds
Read the Original
This page is a summary of: Greasing the Wheels of Change: Bribery, Institutions, and New Product Introductions in Emerging Markets, Journal of Management, October 2017, SAGE Publications,
DOI: 10.1177/0149206317736588.
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