Can a Signal Mitigate a Dilemma? Quality Management Standards, Corruption, and Business Ethics

32 Pages Posted: 26 May 2021

See all articles by Barkat Ullah

Barkat Ullah

Morgan State University

Zuobao Wei

University of Texas at El Paso

Yicheng Zhu

University of Texas at El Paso - College of Business Administration

Date Written: February 28, 2021

Abstract

Firms operating in corrupt environments routinely face an ethical dilemma. On the one hand, bribery can be used as an efficient strategy to “get things done”. On the other hand, corruption is unethical, illegal, and a social ill that people detest. A corrupt environment is also informationally opaque, as the illegality of bribery is necessarily linked to secrecy. Hence, business strategies conducive to reducing information asymmetry help mitigate the ethical dilemma. One such strategy is signaling through adopting internationally recognized quality management standards such as ISO certifications. We examine the World Bank Enterprise Survey (WBES) data for almost 100 thousand firms from 2006-2019 across 141 mostly developing countries where corruption is rampant. We find that certified firms exhibit higher sales growth than uncertified firms. More importantly, we find that ISO adoption has a moderating effect on corruption activities and that the effect is stronger where corruption is more severe. Our findings have two important strategic implications. First, firms in developing countries can use ISO certification as a signal to overcome the inherent information asymmetry and facilitate growth. Second, ISO adoption also sends a signal to bureaucrats that certified firms have a more ethical culture, stronger internal controls and are not easy picks, thus mitigating the ethical conundrum.

Keywords: Quality Management Standards; International Organization for Standardization (ISO); corruption; firm growth; information asymmetry; signaling.

JEL Classification: G00, O11, O40

Suggested Citation

Ullah, Barkat and Wei, Zuobao and Zhu, Yicheng, Can a Signal Mitigate a Dilemma? Quality Management Standards, Corruption, and Business Ethics (February 28, 2021). Available at SSRN: https://ssrn.com/abstract=3853353 or http://dx.doi.org/10.2139/ssrn.3853353

Barkat Ullah (Contact Author)

Morgan State University ( email )

Baltimore, MD 21251
United States

Zuobao Wei

University of Texas at El Paso ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915-747-5381 (Phone)
915-747-6282 (Fax)

Yicheng Zhu

University of Texas at El Paso - College of Business Administration ( email )

University Library - Acquisitions Department
500 West University Avenue
El Paso, TX 79968
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
10
Abstract Views
126
PlumX Metrics