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Denial of Corruption: Voluntary Disclosure of Bribery Information

Authors:
Susana Gago-Rodriguez at Comillas Pontifical University
Susana Gago-Rodriguez
Gilberto Marquez at University of Rhode Island
Gilberto Marquez
Manuel Núñez-Nickel
Manuel Núñez-Nickel
Manuel Núñez-Nickel
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Abstract

This study explores the rationality behind firms’ decision to admit or deny their involvement in bribery when responding to confidential surveys conducted by international agencies (such as the World Bank). Specifically, we posit that firms’ reluctance to provide accurate information about their engagement in bribery is at least to some extent contingent on certain situational factors. In other words, we claim that this behavior is context dependent. The paper uses the notions provided by the theory of planned behavior to understand the way in which the corruption of the legal environment, the intensity of market competition, and identification risk influence firms’ decision to lie about their involvement in bribery. To test these notions, we use databases from the fifth wave of the EBRD-World Bank Business Environment and Enterprise Performance Survey, country-level data from the Kauffman Foundation and macroeconomic (i.e., country-level) information from the World Bank database. We run ordinary least squares with geographic region-clustered standard errors on data from 30 countries and 6122 individual firms during the period 2012–2013. Consistent with our expectations, the results indicate that firms operating within more corrupt legal environments, facing more competition, and bearing a higher risk of being identified are less likely to deny their involvement in bribery. We conclude that not all firms have the same incentives to lie about their participation in bribery, and therefore, identifying the drivers of this heterogeneity may help policymakers better assess the reliability of bribery information collected through confidential surveys.
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Vol.:(0123456789)
1 3
Journal of Business Ethics (2020) 162:609–626
https://doi.org/10.1007/s10551-018-3989-9
ORIGINAL PAPER
Denial ofCorruption: Voluntary Disclosure ofBribery Information
SusanaGago‑Rodríguez1· GilbertoMárquez‑Illescas2· ManuelNúñez‑Nickel1
Received: 1 March 2018 / Accepted: 29 July 2018 / Published online: 11 August 2018
© Springer Nature B.V. 2018
Abstract
This study explores the rationality behind firms’ decision to admit or deny their involvement in bribery when responding to
confidential surveys conducted by international agencies (such as the World Bank). Specifically, we posit that firms’ reluc-
tance to provide accurate information about their engagement in bribery is at least to some extent contingent on certain situ-
ational factors. In other words, we claim that this behavior is context dependent. The paper uses the notions provided by the
theory of planned behavior to understand the way in which the corruption of the legal environment, the intensity of market
competition, and identification risk influence firms’ decision to lie about their involvement in bribery. To test these notions,
we use databases from the fifth wave of the EBRD-World Bank Business Environment and Enterprise Performance Survey,
country-level data from the Kauffman Foundation and macroeconomic (i.e., country-level) information from the World
Bank database. We run ordinary least squares with geographic region-clustered standard errors on data from 30 countries
and 6122 individual firms during the period 2012–2013. Consistent with our expectations, the results indicate that firms
operating within more corrupt legal environments, facing more competition, and bearing a higher risk of being identified
are less likely to deny their involvement in bribery. We conclude that not all firms have the same incentives to lie about their
participation in bribery, and therefore, identifying the drivers of this heterogeneity may help policymakers better assess the
reliability of bribery information collected through confidential surveys.
Keywords Voluntary disclosure· Bribery· Competition· Corruption
Introduction
The battle against bribery is one of the top priorities of
policymakers throughout the world.1 Nevertheless, design-
ing effective anti-bribery measures is a complicated task.
Among other things, it requires a good understanding of
the extent, causes, and dissemination patterns of bribery
practices. Because bribery is usually not observable, poli-
cymakers rely on data collected through firm-level surveys
to develop their understanding. Consequently, policymak-
ers’ capacity to fight bribery depends to a great extent on
whether individual firms are willing to disclose their own
involvement in bribery. From a rational perspective, given
the criminal nature and poor social reputation of bribery,
* Manuel Núñez-Nickel
mnunez@emp.uc3m.es
Susana Gago-Rodríguez
sgago@emp.uc3m.es
Gilberto Márquez-Illescas
gmarquez@uri.edu
1 Business Administration, Universidad Carlos III de Madrid,
C/Madrid, 126, 28903Getafe, Madrid, Spain
2 Present Address: College ofBusiness Administration,
University ofRhode Island, 7 Lippit Road, Kingston,
RI02881, USA
1 Considering its magnitude as well as its negative consequences for
economic development and international trade (e.g., Organization for
Economic Cooperation and Development (2016), it is not surprising
that the battle against bribery is a priority for policymakers through-
out the world. The International Monetary Fund (2016) states that the
cost of bribery might well be between $1.5 and $2 trillion per year.
To put this figure into context, this estimate is roughly equivalent to
2% of the global gross domestic product (GDP) and is greater than
the current GDP of Canada (i.e., the 10th largest economy in the
word). In recent decades, the U.S. and other developed countries have
assessed fines against firms that participate in bribery in their national
and international businesses (Criminal Division of the U.S. Depart-
ment of Justice and Enforcement Division of the U.S. Securities and
Exchange Commission 2012). This anti-bribery effort seemed to
result in investors from these countries reducing their investments in
corrupt countries (Cuervo-Cazurra 2008). Some examples of legisla-
tion that includes a penalty are the 1977 U.S. Foreign Corrupt Prac-
tices Act, the 1997 OECD Convention on Combating Bribery, and the
2010 British Bribery Act.
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
... When applying proprietary costs theory (Verrecchia 1983), researchers have suggested that the communication of proprietary information could compromise a company's competitive position by providing strategic information to competitors. The latter asserts fraud "as bad news", and thus disclosing entities could also trigger a successful strike by opponents and support higher proprietary costs (Gago-Rodríguez et al. 2020). Prencipe (2004) suggests that benefits that can accrue from greater risk disclosure can be completely offset by these costs. ...
... In addition, FR_DISC might crowd out other risk information, possibly even attenuating the positive direct effect of disclosure on financial stability. This finding corroborates with some previous studies (Dai et al. 2024;Gago-Rodríguez et al. 2020;Prencipe 2004). In addition, we can still conclude that higher ownership concentration leads to financial instability of insurance companies. ...
... Second, even though there are several studies on corporate fraud and financial stability (e.g., Dai et al. 2024;Gago-Rodríguez et al. 2020;Prencipe 2004), most research was conducted in the setting of developed countries such as the US and UK, and the conclusions of this study may not apply to other economies with different contextual circumstances, like Saudi Arabia. In such a case, the clarity of regulatory requirements related to the disclosure of information in Saudi Arabia is not at a sufficient organizational level to ensure insurance system stability (SAMA 2023). ...
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