Firm Competitiveness and Detection of Bribery

Abstract

Using survey data from firms around the world I analyze how detection of bribery has impacted a firm’s competitiveness over the past year. Managers report that the most significant impact was on employee morale, followed by business relations, and then reputation and regulatory relations. The impact on stock price has been much less significant and this could be attributed to stock prices not reflecting the impact on employee morale and business relations in less competitive labor and product markets. To better understand these bribery cases I analyze detailed data on the identity of the main perpetrator, detection method and organizational response following detection and find that both the method of detection and how an organization responds are systematically related to the seniority or type of the perpetrator. Finally, I examine how these factors are associated with the impact on competitiveness and find that internally initiated bribery from senior executives is more likely to be associated with a significant impact on firm competitiveness. Bribery detected by the control systems of the firm is less likely to be associated with a significant impact on regulatory relations. Finally, bribery cases where the main perpetrator is dismissed are less likely to be associated with a significant impact on firm competitiveness. These results shed light on the costs of bribery after detection.

Keywords: competitiveness, reputation, bribe, corruption, firm performance, employee morale, control systems

JEL Classification: M1, M2, M4, M5