Disappearing Position-Related Consumption: Firm Bribery and Government-Firm Reciprocity

Abstract

This paper examines the ethical implications of government-firm reciprocity in the absence of election incentives and its impact on firm performance. Using hand-collected data of the position-related consumption of local officials during 2013-2017 in China, we investigate the relationship between this practice and corporate bribery. The results show that the reduction in the budget of position-related consumption leads to an increase in firms’ business entertainment expenses. Firms pay for the personal consumption of local officials through business entertainment expenses, which essentially represents a bribe to local officials. Further analysis indicates that firms bribing local officials receive more government subsidies and preferential tax deductions. However, such reciprocity does not improve firm performance. This study examines the interplay of covert bribery and unethical corporate favoritism, contributing to the business ethics and corruption literature by identifying the relationship between firm venality, government-firm reciprocity, and firm development.

Keywords: position-related consumption, firm bribery, government-firm reciprocity, business ethics, firm development