Digitalization Level, Corruptive Practices, and Location Choice in the Hotel Industry

Abstract

Based on institutional and agency theories, this paper examines the role of host corruptive practices on country choice for the hotel industry, as well as the power of digitalization as an anti-corruption tool. Digitalization level can boost transparency and can help monitor corruptive practices and other unethical behaviours. Relying on data from the Spanish hotel industry, the results confirm that the existence of corruptive or weak institutions has a significant impact on country choice, while a high digitalization level reduces the possibility of corruptive practices. We contribute by analysing the precise effect of host corruptive practices on country choice and the powerful effect of digitalization level as an anti-corruption instrument. This study is particularly interesting for the hotel industry, as a service sector, where multinationals need to carry out most of activities in the host country and maintain close interactions with foreign agents.

Full text

Journal of Business Research 136 (2021) 176–185
Available online 28 July 2021
0148-2963/© 2021 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Digitalization level, corruptive practices, and location choice in the
hotel industry
☆
Ana M. Romero-Martínez
a
,
*
, Fernando E. García-Mui˜
na
b
a
Complutense University of Madrid, Faculty of Economics and Business, Av. de Filipinas, n◦3, 28003 Madrid, Spain
b
Rey Juan Carlos University, Faculty of Law and Social Sciences, Paseo de los Artilleros, s/n, 28032 Madrid, Spain
ARTICLE INFO
Keywords:
Corruption
Corruptive practices
Digitalization level
Location choice
Service industry
Hotel industry
ABSTRACT
Based on institutional and agency theories, this paper examines the role of host corruptive practices on country
choice for the hotel industry, as well as the power of digitalization as an anti-corruption tool. Digitalization level
can boost transparency and can help monitor corruptive practices and other unethical behaviours. Relying on
data from the Spanish hotel industry, the results conrm that the existence of corruptive or weak institutions has
a signicant impact on country choice, while a high digitalization level reduces the possibility of corruptive
practices. We contribute by analysing the precise effect of host corruptive practices on country choice and the
powerful effect of digitalization level as an anti-corruption instrument. This study is particularly interesting for
the hotel industry, as a service sector, where multinationals need to carry out most of activities in the host
country and maintain close interactions with foreign agents.
1. Introduction
Corruption is a perpetual human behaviour that has existed in every
society over time (Barkemeyer et al., 2018; Kouznetsov et al., 2019).
Corruptive practices may be prevalent in every country in different ways
and with different intensities, and should always be considered negative
(Gorsira et al., 2018; Mousavi & Pourkiani, 2013). According to the
World Economic Forum (WEF), corruptive practices have caused a
documented worldwide annual cost of more than 3.5 trillion dollars
through bribes and stolen money (Johnson, 2018). The dramatic socio-
economic consequences of corruption have increased societal and
governmental concern about this issue (Gorsira et al., 2018), which has
been intensied by globalization in all sectors (Petrou & Thanos, 2014).
This phenomenon has gained much attention from business and man-
agement scholars over the last three decades (Farrales, 2005; Godinez &
Liu, 2015; Wang et al., 2018), although empirical results about its
impact on internationalization remain inconclusive (Helmy, 2013;
Nguyen & van Dijk, 2012; Petrou & Thanos, 2014).
Corruptive practices such as bribery, fraud and nancial crime
consist of the abuse of (entrusted) power for private gain or benet
(Bahoo et al., 2020; Cuervo-Cazurra, 2006; Gorsira et al., 2018); such
practices take place because of information asymmetries and lack of
transparency (Javorcik & Wei, 2009). Drawing on institutional theory
(North, 1990), scholars consistently agree that the strength of in-
stitutions shapes opportunities and business practices in each country to
reduce asymmetries and uncertainty (Nielsen et al., 2017). This may
inuence a rm’s decisions, because they must adapt to the rules and
values prevailing in the host country (DiMaggio & Powell, 1983). When
the host country has weak or under-developed institutions, multina-
tionals should be aware that corruptive practices could be rooted in that
country (Godinez & Liu, 2015; Svensson, 2005). Weak formal in-
stitutions can lead to instability, market failures, uncertainty and in-
formation complexity in transactions, all of which entail higher costs
and risks (Barkemeyer et al., 2018; Svensson, 2005).
Previous studies have concluded that corruption negatively in-
uences economic growth (Fisman & Svensson, 2007; Mauro, 1995),
investments (Cuervo-Cazurra, 2016; Lambsdorff, 2003), innovation and
entrepreneurship (Anokhin & Schulze, 2009) and social development
(Mauro, 1998). This issue has recently been studied in international
business (IB) (Godinez & Liu, 2015), particularly in relation to emerging
and transition economies (Hellman et al., 2000; Rodriguez et al., 2006).
The IB literature conrms that corruption hinders foreign direct
☆
This paper has been supported by Project RTI2018-097447-B-I00 of the Ministry of Science, Innovation and Universities (Spain), the Excellent Research Group
“Strategor” of URJC-Santander Bank, and UCM consolidated research group "Strategies for Business Growth" 940376.
* Corresponding author.
E-mail addresses: amromero@ucm.es (A.M. Romero-Martínez), fernando.muina@urjc.es (F.E. García-Mui˜
na).
Contents lists available at ScienceDirect
Journal of Business Research
journal homepage: www.elsevier.com/locate/jbusres
https://doi.org/10.1016/j.jbusres.2021.07.032
Received 19 September 2020; Received in revised form 12 July 2021; Accepted 14 July 2021

Journal of Business Research 136 (2021) 176–185
177
investment (FDI) and country choice (Brada et al., 2019; Brouthers et al.,
2008; Doh et al., 2003; Donnelly & Manolova, 2020; Li et al., 2021;
Uhlenbruck et al., 2006; Woo & Heo, 2009).
In accordance with the previous literature, in this paper we adopted
the moralist view of corruption that condemns such unethical practices;
this is currently the view most accepted by scholars (Javorcik & Wei,
2009; Petrou & Thanos, 2014). Although public ofcers may carry out
corruptive practices, they have the capacity to build strong formal in-
stitutions to monitor and circumvent corruption (Petrou & Thanos,
2014). Due to market globalization, countries need to present favour-
able environments and strong institutions to attract foreign investment,
so corruptive practices should be monitored and reduced. The level of
digitalization for institutional rules, regulations and routines through
information and communication technology (ICT) can play a positive
role as an anti-corruption tool (Huarng, 2015; Kim et al., 2009). Digi-
talization level improves public information, the ow of information
between public and private agents and enables citizens to scrutinize
public ofcers (Adam & Fazekas, 2018; Bertot et al., 2010; Davies &
Fumega, 2014; Kossow & Dykes, 2018; Kuriyan et al., 2011).
To better comprehend how governments can reduce corruptive
practices and increase international investments, we considered the
following research questions: rst, do host corruptive practices inhibit
country choice? Second, is digitalization level an effective anti-
corruption tool?
The hotel industry is an excellent eld to test our hypotheses because
establishing hotels abroad is a resource-intensive activity and multina-
tionals have to interact with politicians and society in general. The
Spanish hotel industry is a benchmark at the international hotel in-
dustry, because it is heavily involved in internationalization (G´
emar
et al., 2016). However, studies on location choice in the hotel industry
are scarce. Some exceptions are Fang et al. (2019) and Puciato (2016),
who identied relevant factors in country choice for the hotel industry,
such as the hotel clustering and agglomeration, the level of economic
development and the degree of internationalization at the location.
Our ndings indicate that corruptive practices in the host country
reduce the number of hotel establishments in that country. The results
also conrm the expected role of digitalization level as an efcient anti-
corruption tool.
Our study contributes to the existing literature in several ways. First,
we analysed the precise impact of corruptive practices on country
choice, because previous authors have called for more research on this
topic (Petrou & Thanos, 2014; Rodriguez et al., 2005). Dealing with
corruption is especially interesting in the hospitality industry as a ser-
vice sector, because multinationals need to carry out most of the activ-
ities in the host country due to the nature of the product, and
accordingly, close and regular interactions with foreign governments
and local agents are involved (Pl´
a-Barber & Ghauri, 2012). Second, we
dened corruption broadly, as a many-faceted phenomenon, going
beyond previous biased perspectives, which yielded a broad and
objective measure of corruption that goes beyond the perceptual Cor-
ruption Index (Cuervo-Cazurra, 2016). Third, we studied the role of
digitalization level as an anti-corruption tool. Digitalization is a rela-
tively new phenomenon and inuences the activities of rms in foreign
markets because it can make formal institutions stronger and trans-
actions more transparent (Daude & Stein, 2007; Nielsen et al., 2017). To
test the effect of digitalization level on corruptive practices, we distin-
guished between corruptive practices related either to formal institu-
tional weakness or to socio-cultural values in favour of corruption
(Barkemeyer et al., 2018; Kouznetsov et al., 2019). This distinction is
necessary because governments may only act to reduce corruptive
practices by strengthening formal institutions, at least in the short/
medium-term. Finally, we have provided a comprehensive concept
and measurement of digitalization level that takes into account e-gov-
ernment administration, the technical development level of in-
frastructures and the technical skills of citizens (Charoensukmongkol &
Moqbel, 2014).
2. Theory and hypotheses
Based on institutional theory, institutions are structures that provide
the basis for a society and affect the actions and behaviours of people,
systems and organizations (Arregle et al., 2013; North, 1991). In-
stitutions dene the rules of the game between agents and inuence the
attractiveness of the host country (North, 1990). Institutions can be both
formal – laws and regulations, policies, economic structures and
enforcement measures – and informal – norms, values, beliefs, tradi-
tions, prevalent practices and codes of conduct (North, 1990). Accord-
ingly, the economics literature allows us to go deeper into the analysis of
the formal institutions. Agency theory states that the complexity of
transactions determines the likelihood of conict between agents (Wil-
liamson, 2000). Uncertainty and risk associated with the home and host
agents’ relationships entail costs that may inhibit country choice. If
formal institutions are weak, transactions are characterized by high
uncertainty and information asymmetries.
An increasing number of scholars have argued that corruptive
practices should be studied in the context of the institutional structures
in which they exist (Farrales, 2005). Corruption, red tape, excessive
bureaucracy and political instability take place in poor formal institu-
tional environments. Thus, weak formal institutions let corruption
become a prevalent practice in societies (e.g., Daude & Stein, 2007;
Nielsen et al., 2017; Wei, 1997; Wheeler & Mody, 1992).
2.1. Corruptive practices and location choice
Corruption is an important phenomenon that characterizes coun-
tries’ development level (Rose-Ackerman, 2007), the relationships be-
tween different agents and cultural values in a society. Corruptive
practices emerge when formal institutions are poor and inefcient and
cultural values are prone to corruption (Godinez & Liu, 2015; Svensson,
2005). These circumstances support information asymmetries and
opportunistic behaviour in transactions (Krueger, 1974). Corruption
includes different practices such as bribery, fraud, extortion and nepo-
tism (Elbahnasawy, 2014; Steidlmeier, 1999). Such corruption may
damage the strength and solvency of a nation (Voyer & Beamish, 2004).
A review of the literature reveals that there are several denitions
and conceptual views of corruption (Cuervo-Cazurra, 2006; Farrales,
2005; Godinez & Liu, 2015). A review of the denitions of corruption
shows that this concept has mainly focused on the public sphere,
because corruptive practices are a principal-agent problem, with citizens
usually being principals and government ofcials or bureaucrats being
agents that act on the citizens’ behalf (Barkemeyer et al., 2018; Doh
et al., 2003). Aguilera and Vadera (2008), Godinez and Liu (2015), Jain
(2001), Roy and Oliver (2009) and Svensson (2005) dened corruption
as acts or practices in which the power of public ofce is abused for
personal or private gain in a manner that contravenes the rules of the
game. Shleifer and Vishny (1993: 599) dened power abuse as “the sale
by the government ofcials of government property for personal gain”.
Similarly Judge et al. (2011) and Akçay (2006) dened corruption as the
misuse of public power for private benet; it is most likely to occur
where public and private sectors meet. Rose-Ackerman (1999, 2007)
dened corruption in a similar way, focusing on the public agent, but
also highlighting the illegal payments that corruptive practices entail.
Other studies like those by Cuervo-Cazurra (2006) and Gorsira et al.
(2018) kept this broad denition of corruption as the abuse of (entrus-
ted) power for private gain or benets.
There are two opposing theoretical approaches to corruption:
moralist and revisionist. The moralists condemn corruptive practices
because such practices are a plague in societies and destroy well-being
(Javorcik & Wei, 2009; Petrou & Thanos, 2014). These practices form
a threat that should be monitored and controlled legally (Rose-Acker-
man, 1999). The revisionists, on the other hand, argue that corruption
should be studied more objectively: corruptive practices are considered
unavoidable in transactions (Bayley, 1966; Leff, 1964; Nye, 1967). Qi
A.M. Romero-Martínez and F.E. García-Mui˜
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Journal of Business Research 136 (2021) 176–185
178
et al. (2020) even stated that bureaucratic corruption could, in some
cases, improve efciency in a weak institutional environment.
In IB literature most scholars consider that corruptive practices in a
host country have a negative impact on internationalization (Bardhan,
1997; Campos et al., 2010; Cuervo-Cazurra, 2016; Lambsdorff, 2006;
Mauro, 1998). It appears that, with some exceptions like Barassi and
Zhou (2012) and Helmy (2013), the revisionist view has much less
empirical support than the moralist one (Aidt, 2009). Drawing on a
moralist approach, we consider that weak formal institutions yield to
corruptive practices, while strong institutions hinder them.
Corruptive practices can negatively inuence location choice for
multinational organizations (Donnelly & Manolova, 2020; Holmes et al.,
2013). Solid/developed formal institutions reduce uncertainty for the
collective (North, 1991) and create obstacles for corruptive behaviour.
Mature legal and judicial systems improve market efciency and control
over government discretion (Williamson, 2000), thus reducing uncer-
tainty and facilitating fair transactions (Globerman & Shapiro, 2003;
Petrou & Thanos, 2014). Inefcient formal institutions, meanwhile,
boost risk in terms of information asymmetries, opportunity costs
(Contractor et al., 2014; Hutzschenreuter & Voll, 2008) and lack of
transparency (Javorcik & Wei, 2009).
Corruptive practices lead to an increase in costs because companies
must not only pay fair prices but also pay bribes to government ofcials.
Some authors consider corruptive practices as a tax on foreign rms
(Kouznetsov et al., 2019; Mauro, 1995; Petrou & Thanos, 2014; Voyer &
Beamish, 2004; Wei, 2000), and corruptive practices can promote un-
equal treatment of agents depending on their position in society and
who can pay more (Gaur et al., 2007; Gupta et al., 2002; Mungiu-
Pippidi, 2006). An additional cost is derived from the managerial and
employee time devoted to dealing with corrupt government ofcials
(Cuervo-Cazurra, 2016; Kaufmann, 1997; Svensson, 2005).
Previous studies have conrmed that corruptive practices do in fact
have a detrimental impact on FDI and country choice (Brada et al., 2019;
Cole et al., 2009; Collins et al., 2009; Du et al., 2008; Habib & Zurawicki,
2002; Jain, 2001; Voyer & Beamish, 2004; Wei, 1997, 2000; Wilhelm,
2002; Zhao et al., 2003). According to the institutional and agency
theories, inefcient formal institutions can create signicant uncertainty
and restrict the behaviour of foreign rms (Bailey, 2018; Brouthers,
2002; Eden & Miller, 2004; Li et al., 2018; White et al., 2018), making
corruptive practices more likely and reducing the presence of multina-
tional enterprises (MNEs) in that country (Barkemeyer et al., 2018).
Consistent with these arguments, we propose the following hypothesis:
Hypothesis 1. Corruptive practices in the host country negatively
inuence foreign rms’ location choice.
2.2. Digitalization level as an anti-corruption policy
Digitalization level involves the use of ICT, such as electronic data
management systems, the internet and communication infrastructure,
which facilitates the processing, transmission and display of information
(Charoensukmongkol & Moqbel, 2014). This also includes seeking per-
missions and demonstrating compliance with the rules, which would be
done electronically. ICT improves efciency through automated services
and by simplifying administrative procedures (Davies & Fumega, 2014).
Consequently, effective implementation of digitalization requires the
adaptation of administrative governmental processes and users’ digital
knowledge (Adam & Fazekas, 2018).
One of the main contributions of digitalization is its use as an anti-
corruption tool. Regarding the institutional context, a higher level of
digitalization improves the ow of information and increases the
transparency of formal institutions by monitoring information asym-
metries and discretional behaviours, reducing uncertainty and fostering
unbiased citizen participation (Bertot et al., 2010; Chˆ
ene, 2012;
Gr¨
onlund et al., 2010; Klitgaard, 1988). Level of digitalization therefore
contributes to making public institutions more efcient and responsible
(Davies & Fumega, 2014), as well as ensuring their activity is more
easily legally controllable (Rose-Ackerman, 1999).
Drawing on agency theory, the effect of ICT on corruptive practices
can be analysed from two points of view: the demand side of “citizens to
government” (or “upward transparency” or “push”) and the supply side
of “government to citizens” (or “downward transparency” or “pull”)
(Adam & Fazekas, 2018; Avila et al., 2011; Gr¨
onlund et al., 2010; Heald,
2006; Kossow & Dykes, 2018). Regarding the demand side, a high level
of digitalization reduces corruptive practices by monitoring public of-
cials more effectively (Pathak et al., 2007; Shim & Eom, 2008), because
greater digitalization lets citizens inform or complain about corruptive
practices. There are also fewer face-to-face encounters between public
ofcials and citizens with digitalization, which means less intermedia-
tion and the recording of all transactions in public data sets (Char-
oensukmongkol & Moqbel, 2014). Concerning the supply side,
automation of the administrative process hinders public ofcials’
discretionary actions and makes all public initiatives more accessible
and visible (Castells, 2000; Soper, 2007). Accordingly, thanks to digi-
talization, the bidirectional distribution of information is more efcient
between citizens and government, which makes digitalization level a
valuable anti-corruption tool (Adam & Fazekas, 2018). In any case, the
ICT development level of the country and citizens’ digital skills play a
key role, because they are the necessary requisites to transparent
transactions (Davies & Fumega, 2014).
Previous empirical evidence on the link between digitalization level
and corruptive practices is scarce and inconclusive; however, some re-
sults indicate the signicant positive role of digitalization level as an
anti-corruption measure (Adomako et al., 2021; Andersen, 2009; Kim
et al., 2009; Shim & Eom, 2008). Mistry and Jalal (2012) and García-
Murillo (2013) have studied corruption perception and conrmed that,
as the digitalization level of public administration increases, corruption
perception decreases. Mistry and Jalal (2012) found that the relation-
ship was even stronger in developing countries. More specically, au-
thors such as Kleven et al. (2011) and Pomeranz (2013) conrmed that
modern electronic tax reporting systems reduced fraud and corruptive
practices. Similarly, Krolikowski (2014) examined the use of mobile
payment methods on corruptive practices and found the same effect.
Digitalization level allows the host country to provide higher quality
digital public services. A well-developed digital environment can help to
reduce communication problems by providing a positive and trans-
parent formal institutional context in which foreign rms can feel pro-
tected. This transparency reduces information asymmetries and
uncertainty, discretionary behaviour decreases and corruptive practices
are less likely to occur. Accordingly, our second hypothesis is:
Hypothesis 2. Digitalization level in a host country reduces corruptive
practices.
Fig. 1 shows the analysis model with the proposed hypotheses. Hy-
pothesis 1 proposes the negative effect of corruptive practices on loca-
tion choice and hypothesis 2 sets out that digitalization level is an anti-
corruption tool in a host country.
COUNTRY
CHOICE
DIGITALIZATION
LEVEL
CORRUPTIVE
PRACTICES
H
1
H
2
Fig. 1. Model of analysis.
Source: Authors’ own work.
A.M. Romero-Martínez and F.E. García-Mui˜
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Journal of Business Research 136 (2021) 176–185
179
3. Method
3.1. Data and population
This study was based on the entire population of the 64 inter-
nationalized Spanish hotel chains. The Spanish industry is concentrated
around the top six chains according to the global number of hotels: Meli´
a
Hotels International, NH Hotel Group, Barcel´
o Hotel Group, RIU Hotels
and Resorts, Eurostars Hotels and Resorts and AC by Marriot. In 2018,
the top ve most attractive destinations for the Spanish hotel industry
were (see Table 1): the USA (181 establishments), Germany (113 es-
tablishments), Italy (100 establishments) Mexico (93 establishments)
and the Dominican Republic (66 establishments).
We created our dataset from two complementary secondary sources
on the Spanish tourism industry: Hosteltur and the Global Competi-
tiveness Index (GCI) of countries from the WEF report. Because we have
adopted an institutional country characteristics approach, the unit of
analysis is the host country. Some countries where Spanish hotel chains
operate were not included in the GCI, however, so those location choices
were eliminated from the empirical analysis (Andorra, Aruba, Bahamas,
Cuba, Puerto Rico and Saint Martin).
Hosteltur, as the Spanish mass media leader for specialized profes-
sional tourist information, publishes the International Presence Ranking
(2018) of Spanish hotel chains. The reliability of this information source
is supported by several academic researchers (i.e. Andreu et al., 2017;
Escobar-Rodríguez & Carvajal-Trujillo, 2013; García-Mui˜
na et al., 2020;
Quer et al., 2007; Romero-Martínez et al., 2019). The WEF GCI assesses
the competitive capacity of 138 economies, providing insight into the
drivers of their productivity and prosperity. The GCI is one of the data
sets most often used when studying corruption (Cuervo-Cazurra, 2016).
Before undertaking measurement of variables and testing the hypothe-
ses, data were standardized when needed.
3.2. Measures
Dependent variable. The dependent variable, host location choice,
considers the international presence of Spanish hotel chains in each
country. We included the number of Spanish hotel establishments in
every country where the hotel chains are present. We used data from the
international presence ranking (2018).
Independent variables. We measured corruptive practices, ac-
cording to the broad conception of corruptive practices adopted in this
paper, by means of seven items from the GCI (Collier, 2002): legal
framework efciency (regulation), legal framework efciency (dispute),
strength auditing, judicial independence, reliability of police services,
organized crime and intellectual property. We built our measures by
drawing on the previous literature (Godinez & Liu, 2015; Shelley, 1998;
Varese, 1997). We obtained a one-dimension factor through exploratory
factor analysis (EFA). Corruptive practices are latent complex phe-
nomena and non-directly observed, so they are measured by several
items that can be observed. EFA simplies the interrelated measures and
identies the underlying factor structure. The analysis results are shown
in Table 2. All items loaded on a single factor, conrming a one-
dimension construct. The Cronbach’s alpha value shows that the scale
created is reliable. Moreover, KMO and Bartlett tests show that the data
are valid to run the factor analysis.
Besides corruptive practices due to the weaknesses of formal in-
stitutions, such practices can also be favoured by socio-cultural informal
aspects highly rooted in society values (Collier, 2002; Judge et al., 2011;
Svensson, 2005). According to the literature, however, digitalization
level only affects corruptive practices due to poor formal institutions
(Charoensukmongkol & Moqbel, 2014). Therefore, we removed the
socio-cultural dimension from the whole corruptive practices factor.
To measure the digitalization level of a country, we built a one-
dimension variable using EFA. Several items from the GCI were
selected, taking into consideration the adoption of digital initiatives by
governments (the e-participation index), the digital infrastructure
available to the population (mobile and xed broadband availability)
Table 1
Top six internationalized Spanish hotel chains in 2018 with more than 50 in-
ternational hotels.
Hotel Chain International hotels Number of foreign countries
NH Hotel Group 253 28
Barcel´
o Hotel Group 181 21
Meli´
a Hotels International 145 33
AC by Marriott 76 16
Eurostars Hotel Company 63 18
RIU Hotels & Resorts 58 15
Source: Authors’ own work from (2018).
Table 2
Measurement of corruptive practices: Factor analysis results.
Total variance explained
Items Initial auto-value Sums of extraction of squared loads
Total % of variance % accumulated Total % of variance % accumulated
Legal framework efciency (regulation) 5.503 78.615 78.615 5.503 78.615 78.615
Legal framework efciency (dispute) 0.613 8.757 87.371
Strength auditing 0.477 6.814 94.186
Judicial independence 0.158 2.254 96.440
Reliability of police services 0.093 1.332 97.772
Organized crime 0.085 1.209 98.981
Intellectual property protection 0.071 1.019 100.000
Items Factor loads
Legal framework efciency (regulation) 0.913
Legal framework efciency (dispute) 0.911
Strength auditing 0.788
Judicial independence 0.949
Reliability of police services 0.913
Organized crime 0.787
Intellectual property protection 0.929
Cronbach’s Alpha 0.918
KMO 0.877
Bartlett test
Approx. 1175.997
Fd 21
Sig. 0.000
A.M. Romero-Martínez and F.E. García-Mui˜
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Journal of Business Research 136 (2021) 176–185
180
and the proportion of internet users in the country. Internet and tele-
communication digital infrastructures are possibly as important as e-
government practices (Adam & Fazekas, 2018; García-Murillo, 2013), so
our measurement of digitalization level includes all of these aspects.
Other related items were eliminated (digital skills of population or bre-
optic internet) because the reliability of the complete scale was signi-
cantly reduced when including them (Cronbach’s alpha <0.7).
The main results are presented in Table 3. The Cronbach’s alpha
value shows that the scale created is reliable. Moreover, the KMO and
Bartlett tests show that the data are valid to run the factor analysis.
Control variables. With a view to removing any interference that
might overshadow the analysis of the results, the control variables
chosen are those corresponding to some factors that may affect foreign
location choice in the hospitality industry. We have included variables
referring to geographic location, socio-economic development and in-
ternational openness. We used data from GCI. The Geographic location
was operationalized by time zones differences. The higher the time
zones differences, the more complex communication (Dow & Karunar-
atna, 2006; Stein & Daude, 2007). Socio-economic development was
measured thought the unemployment rate, income GINI (a measure of
inequality of wealth, from 0 to 100) and gender gap (from 0 to 100).
Then, socio-economic development of the country refers to the stability
of the country and determines its attractiveness (Antonio & Tufey,
2014; Bimber, 2000; Gillwald et al., 2010; Hilbert, 2011). Finally, in-
ternational openness is operationalized by FDI inward ow over GDP.
The openness entails a more attractive country to international investors
(Cuervo-Cazurra, 2008; Wei, 2000).
4. Results
The empirical verication of the hypotheses was undertaken using
multiple linear regression models. The regression model is a statistical
technique widely used for prediction and forecasting in this eld and for
estimating dependent relationships. This technique is suitable for testing
the causal relationships stated in the hypotheses because the impact of
some of the independent variables (digitalization level and corruptive
practices) on the dependent variable (country choice) is studied (Hair
et al., 1999). Data do not present any multicollinearity problems,
because correlations are lower than 0.9 (see Appendix, Table A), VIF
(Variance Ination Factor) values are below 4.0 and tolerance indicators
are far from 0.01.
Regarding control variables, socio-economic development level
(measured by gender gap and income GINI) of the host country appears
to be inversely related to corruptive practices. In addition, the greater
the international openness, operationalized by FDI inward ow over
GDP, the lower the level of corruptive practices in the host country.
Model I shows the relationship between corruptive practices and loca-
tion choice. Results conrm the signicance of the relationship between
Table 3
Measurement of digitalization level: Factor analysis results.
Total variance explained
Items Initial auto-value Sums of extraction of squared loads
Total % of variance % accumulated Total % of variance % accumulated
E-participation index 3.062 76.554 76.554 3.062 76.554 76.554
Mobile broadband subscription 0.422 10.548 87.102
Fixed broadband internet 0.319 7.975 95.077
Internet users 0.197 4.923 100.000
Items Factor loads
E-participation index 0.856
Mobile broadband subscription 0.842
Fixed broadband internet 0.883
Internet user 0.917
Cronbach’s Alpha 0.799
KMO 0.816
Bartlett test
Approx. 331.078
Fd 6
Sig. 0.000
Table 4
Corruptive practices and country choice: Main results.
Model I Standard
coefcients
Standard
error
t Sig.
(Constant) 1.715 1.057 0.293
Gender Gap −0.211 2.491 −1.853 0.067*
5-year average FDI
inward ow (% GDP)
−0.173 0.015 −1.694 0.094*
Income GINI 0.380 0.019 2.867 0.005***
Unemployment rate −0.115 0.024 −1.000 0.320
Time zone differences −0.138 0.053 −1.158 0.250
Digitalization level 0.096 0.256 0.478 0.634
Corruptive practices 0.488 0.296 2.369 0.020**
Resume of Model I
R R
2
Standard
error
F Sig.
0.457 0.210 1.11637329 3.125 0.006***
*
Relationship is signicant at 0.1 level.
**
Relationship is signicant at 0.05 level.
***
Relationship is signicant at 0.01 level.
Table 5
Digitalization level and corruptive practices: Main results.
Model II Standard
coefcients
Standard
error
t Sig.
(Constant) 0.613 −2,090 0.040
Gender Gap 0.127 0.883 2,217 0.029**
5-year average FDI
inward ow (% GDP)
0.112 0.005 2.153 0.034**
Income GINI −0.082 0.007 −1.222 0.225
Unemployment rate 0.001 0.009 0.011 0.991
Time zone differences 0.114 0.019 1.890 0.062*
Digitalization level 0.782 0.057 12.253 0.000***
Resume of Model II
R R
2
Standard
error
F Sig.
0.881 0.777 0.41184 49.258 0.000***
*
Relationship is signicant at 0.1 level.
**
Relationship is signicant at 0.05 level.
***
Relationship is signicant at 0.01 level.
A.M. Romero-Martínez and F.E. García-Mui˜
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Journal of Business Research 136 (2021) 176–185
181
them, as expected. Therefore, Hypothesis 1 is accepted.
Model II shows the role of digitalization level in corruptive practices.
As shown in Table 5, the digitalization level of the foreign country
signicantly reduces the country’s level of corruptive practices, as pre-
dicted. Accordingly, Hypothesis 2 is accepted.
It is interesting to observe how a higher digitalization level signi-
cantly reduces corruptive practices (Model II); however, digitalization
does not have a signicant impact on location choice (Model I). This
surprising result led us to explore a possible mediation role of corruptive
practices between digitalization level and country choice. To analyse the
existence of a mediated relationship between digitalization level and
location choice by corruptive practices, we conducted an additional
linear regression (Model III) to verify the fullment of the three basic
conditions that prove the existence of a mediation relationship (Baron &
Kenny, 1986).
The rst condition implies that the mediator variable – corruptive
practices – must signicantly affect the dependent variable – that is, the
location choice (Model I). Verication of Hypothesis 1 conrms this rst
condition for the mediation relationship. The second condition is that
digitalization level must affect corruptive practices in the foreign
country (Model II). The verication of Hypothesis 2 conrms this second
condition for the mediation relationship. The third condition indicates
that digitalization level must affect country location choice (Model III).
The results are consistent with this condition, because the relationship
between digitalization level and country choice is signicant. Accord-
ingly, the greater the digitalization level of the host country, the greater
the number of establishments of Spanish hotel chains in that location.
The three previous conditions all hold in the predicted direction. To
conrm the mediation effect, the direct effect of the digitalization level
on country choice must be less in Model I (including the mediating
variable) than in Model III (excluding the mediating variable). Indeed,
perfect mediation exists if digitalization level has no effect when the
corruptive practices variable is also controlled. As shown in Table 4
(Model I), there is no impact of digitalization level on location choice
when corruptive practices are included in the regression model; how-
ever, digitalization level is highly signicant for country choice in Model
III, when corruptive practices are not included (Table 6). For the pop-
ulation of hotel chains being analysed, we can thus observe a perfect
mediator role for corruptive practices between digitalization level and
country choice. Nevertheless, this relationship demands more research
in the future.
5. Discussion and conclusions
5.1. Discussion
Based on a moralist perspective of corruption, in this paper we
studied whether host corruptive practices hinder country choice; we
then analysed the role of digitalization level as a potential anti-
corruption tool to make the host country more attractive for interna-
tional investors. We showed that developed socio-economic and inter-
nationally open environments are inversely related to corruptive
practices. The socio-economic development of the host country de-
termines the strength of the country and its attractiveness (Antonio &
Tufey, 2014; Hilbert, 2011), and international openness boots attrac-
tiveness of the country as well (Cuervo-Cazurra, 2008).
With respect to the hypotheses, the results conrmed that corruptive
practices negatively affect country choice. Spanish hotels prefer going to
those countries with lower levels of corruptive practices (Hypothesis 1).
The evidence is consistent with prior research that showed the harmful
effect of corruption on FDI and country choice (Brada et al., 2019; Cole
et al., 2009; Collins et al., 2009; Javorcik & Wei, 2009; Nguyen & van
Dijk, 2012; Wei, 2000).
Moreover, our ndings supported the expected role of digitalization
level. We conrmed that a higher digitalization level signicantly re-
duces corruptive practices (Hypothesis 2). This result is coherent with
scarce previous empirical research that found the effective role of digi-
talization as an anticorruption tool that can positively inuence the
monitoring of corruptive practices (Andersen, 2009; García-Murillo,
2013; Kim et al., 2009; Mistry & Jalal, 2012; Shim & Eom, 2008).
Although studying the effect of digitalization level on country choice
was not the objective of this paper, we observed the absence of a sig-
nicant relationship between the two variables. This was an unexpected
result, because governments have recently been making efforts to
enhance digitalization levels to improve competitiveness. This inter-
esting nding led us to carry out an exploratory test on the mediation
effect of corruptive practices between digitalization level and country
choice. The results conrmed a perfect mediation role for this variable.
This result is consistent with previous research that acknowledges the
strategic role of digitalization level strengthening the institutions of the
host country and monitoring corruptive practices (Adam & Fazekas,
2018; Davies & Fumega, 2014).
5.2. Conclusions
Corruptive practices are rooted in every society, albeit to different
degrees (Godinez & Liu, 2015). They describe the country context
(Kouznetsov et al., 2019) and inuence its attractiveness for foreign
investment (Brada et al., 2019; Javorcik & Wei, 2009; Judge et al., 2011;
Rodriguez et al., 2006). In the current globalized context, governments
are aware of the harmful socio-economic effects of corruption and
devote signicant resources to ghting this scourge (Gorsira et al., 2018;
Petrou & Thanos, 2014).
Accordingly, IB scholars have increasingly paid attention to this
issue, but empirical results are far from conclusive (Farrales, 2005;
Nguyen & van Dijk, 2012). The existence of two conicting theoretical
perspectives to corruptive practices – moralist and revisionist (Rose-
Ackerman, 1999) – may serve to explain the lack of compelling results,
at least in part. While the moralists punish corruptive practices (Javorcik
& Wei, 2009), the revisionists consider them unavoidable or even
necessary in transactions (Helmy, 2013). This paper was based on the
predominant moralist perspective of corruption, given the importance
that ethics and corporate social responsibility have in today’s decision-
making (Ghoul et al., 2019). In line with this, the attractiveness of the
host country depends on the absence of corruptive practices (Rose-
Ackerman, 2007). When MNEs are not accustomed to corruptive prac-
tices in their home countries, they are not willing to accept uncertainty
and lack of transparency in the host country (Javorcik & Wei, 2009;
Table 6
Digitalization level and country choice: Main results.
Model III Standard
coefcients
Standard
error
t Sig.
(Constant) 1.301 0.754 0.452
Gender Gap −0.167 1.857 −1.634 0.10*
5-year average FDI
inward ow (% GDP)
−0.132 0.009 −1.453 0.149
Income GINI 0.301 0.015 2.570 0.012**
Unemployment rate −0.091 0.019 −0.892 0.374
Time zone differences −0.045 0.044 −0.438 0.663
Digitalization level 0.495 0.132 4.199 0.000***
Resume of Model III
R R
2
Standard
error
F Sig.
0.392 0.154 1.02620665 3.277 0.005***
*
Relationship is signicant at 0.1 level.
**
Relationship is signicant at 0.05 level.
***
Relationship is signicant at 0.01 level.
A.M. Romero-Martínez and F.E. García-Mui˜
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Journal of Business Research 136 (2021) 176–185
182
Petrou & Thanos, 2014), which involves costs and risks (Barkemeyer
et al., 2018).
Our empirical evidence is consistent with the general hypothesis
that, all else being equal, rms from developed countries (such as Spain)
prefer countries with more efcient and strong formal institutions,
where corruptive practices are less common. Spain is among the less
corrupt countries worldwide, as it is in the highest quartile (30/198) in
the Corruption Index (Transparency International (2019) ()2019, 2019).
MNEs from developed countries may choose to avoid foreign countries
with inefcient formal institutions because of uncertainty and lack of
transparency (Arregle et al., 2013; Nielsen et al., 2017), because these
countries incur agency costs in transactions between MNEs and local
agents in host countries. Thus, the results of this study conrm that a
host country requires a favourable environment and solid institutions to
attract FDI.
The control of corruptive practices by the extended implementation
of ICT should be a priority for governments and policymakers (Adam &
Fazekas, 2018). Accordingly, we analysed the effect of digitalization
level as an anti-corruption tool. A higher digitalization level provides an
opportunity to monitor and control corruptive practices, because it is a
means to reduce information asymmetries and discretionary behaviours,
as digital systems record every transaction between agents (Davies &
Fumega, 2014; Kossow & Dykes, 2018). Public ofcers’ activities are
also better controlled and revealed because face-to-face interactions are
remarkably reduced (Charoensukmongkol & Moqbel, 2014; Shim &
Eom, 2008).
In addition to testing the two hypotheses of this study, we observed a
mediation effect of corruptive practices between digitalization level and
country choice. We concluded that investment in digitalization should
be oriented towards monitoring corruptive practices, because digitali-
zation level is an instrument or tool that must be adjusted to reach a
strategic objective, such as reducing corruptive practices. This inter-
esting exploratory nding deserves greater attention from academics,
practitioners and policymakers.
Our study makes some theoretical contributions to the IB literature.
First, the paper analysed the effect of corruptive practices on country
choice, because IB researchers have called for more attention to the
causes of country selection (Goerzen et al., 2013; Kim & Aguilera, 2016;
Rugman et al., 2011). Corruptive practices are more hazardous for ser-
vice industries, such as the hospitality sector, because companies must
establish a physical presence in the host country and operations and
distribution take place simultaneously (Pl´
a-Barber & Ghauri, 2012).
These service businesses therefore require regular interaction with local
agents, who are more vulnerable to corruptive practices. Second, we go
beyond the previous literature by dening corruption in a wide and
multi-faceted sense (Cuervo-Cazurra, 2016). Similarly, we presented a
broad denition of digitalization level that includes e-government
administration, technical development level of infrastructure and the
technical skills of citizens (Charoensukmongkol & Moqbel, 2014).
Finally, we studied the role of digitalization level by distinguishing be-
tween corruptive practices related either to formal institutional weak-
ness or to socio-cultural values (Kouznetsov et al., 2019). In this paper
we only focused on formal institutions, because governments may only
inuence them through ICT like digitalization.
We also offer interesting practical implications for governments,
policymakers and MNEs. Due to globalization, monitoring corruptive
practices is essential in every country, but particularly in developing
ones, as companies from developed countries are more reluctant to
invest there (Doh et al., 2003; Frei & Muethel, 2017). Indeed, from an
economic point of view, corruption can be considered a sort of tax that
may inhibit MNEs from choosing developing countries (Kouznetsov
et al., 2019). This issue should be a preferential point in every govern-
mental agenda, especially in developing countries that are more
dependent on foreign funds (Johnson, 2018). Digitalization level has
emerged as an effective anti-corruption technical tool that can assist the
government and policymakers (Adam & Fazekas, 2018; Bertot et al.,
2010; Qian & Sandoval-Hernandez, 2016; Schuppan, 2009). Moreover,
activities such as the engagement of citizens with e-government, the
training of public ofcers and the redenition of administrative pro-
cedures are examples of complementary resources to control corruptive
practices (Davies & Fumega, 2014).
This study has some limitations that we would like to overcome in
future research. On the one hand, organizational variables regarding
hotel chains were not included in this paper, so hotel industry behaviour
is mainly explained by exogenous variables. On the other hand, the
study is based on the Spanish hotel industry, so the results may be biased
by the local idiosyncrasy of Spanish MNEs.
In combatting corruptive practices, governments should focus on
strengthening formal institutions because the stronger the political,
legal and judicial systems, the fewer the corruptive practices in the
short/middle term. Moreover, in the long term, well-developed formal
institutions may produce societies and citizens that are more reluctant to
be involved in corruptive behaviours, thus creating a kind of virtuous
cycle when these new socio-cultural values against corruption reinforce
the role of solid formal institutions. Studying this virtuous cycle could be
a promising line for future research.
From a longitudinal approach, future research should study the
interaction between formal institutions, socio-cultural values and
corruptive practices, as well as its effect on country choice (Godinez &
Liu, 2015; Murphy et al., 1993; Svensson, 2005). Another line for future
Table A
Correlation matrix.
1 2 3 4 5 6 7 8
1. Gender Gap Pearson correlation 1
Sig.
2. 5-year average FDI inward ow %GDP Pearson correlation 0.023 1
Sig. 0.793
3. Income GINI Pearson correlation −0.036 −0.062 1
Sig. 0.700 0.496
4. Unemployment rate Pearson correlation −0.057 −0.009 0.283
**
1
Sig. 0.517 0.918 0.002
5. Time zone differences Pearson correlation 0.056 −0.088 0.252
**
−0.287
**
1
Sig. 0.530 0.306 0.005 0.001
6. Digitalization level Pearson correlation 0.369
**
0.161 −0.466
**
−0.220* 0.073 1
Sig. 0.000 0.062 0.000 0.011 0.400
7. Corruptive practices Pearson correlation 0.280
**
0.149 −0.313
**
−0.209* −0.019 0.742
**
1
Sig. 0.001 0.083 0.000 0.015 0.824 0.000
8. Country choice Pearson correlation 0.052 −0.077 0.031 −0.034 0.041 0.231
**
0.103 1
Sig. 0.559 0.371 0.733 0.697 0.636 0.007 0.231
**
Correlation is signicant at 0.01 (2-tail).
*
Correlation is signicant at 0.05 (2-tail).
A.M. Romero-Martínez and F.E. García-Mui˜
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Journal of Business Research 136 (2021) 176–185
183
research could be the analysis of corruption distance between home and
host country to test the possible difference between MNEs from devel-
oped and developing countries when choosing foreign countries. Some
MNEs choose corrupt host countries because they feel comfortable in
corrupt environments because they are used to such climates in their
home countries. It can therefore be expected that MNEs from corrupt
home countries would be less reluctant to enter corrupt host countries
(Brada et al., 2019; Godinez & Liu, 2015, 2018; Qian & Sandoval-
Hernandez, 2016; Zhao et al., 2003). MNE decisions could also
depend on other host country characteristics that make those destina-
tions attractive, regardless of the presence of corruptive practices.
Future studies could also extend location choice by including the
mode of entry in the foreign country, because some authors suggest that
the effect of corruptive practices changes depending on the type of in-
vestment (Cuervo-Cazurra, 2016). Certain organizational characteristics
could be added to the study as well, specically those related to
corporate social responsibility and reputation, to determine if rms that
are more aware of the importance of business ethics are more reluctant
to invest in corrupt countries (Ghoul et al., 2019). Additional organi-
zational factors to study could be the international experience of man-
aging in poor institutional contexts. Finally, non-linear relationships
between digitalization level, corruptive practices and country choice
could be analysed (Charoensukmongkol & Moqbel, 2014).
Declaration of Competing Interest
The authors declare that they have no known competing nancial
interests or personal relationships that could have appeared to inuence
the work reported in this paper.
Appendix A
See Table A.
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Dr. Ana M. Romero-Martínez is Associate Professor of Management and Entrepreneur-
ship at Faculty of Economics and Business, Complutense University of Madrid (UCM). She
is vice dean for International and Institutional Affairs at Faculty of Commerce and Tourism
(UCM). She held visiting scholar positions at King’s College London, University of London
(2015), SOAS, University of London (2016), University of Birmingham (2018), and
Kingston University of London (2019). Her research focuses on international business in
hotel industry, entrepreneurship and innovation and has been published in top academic
journals such as Journal of World Business, International Business Review, Management
International Review, Service Business or Group Decision and Negotiation, and books in
editorials such as Springer or Thomson Reuters.
Fernando E. García-Mui˜
na PH.D in Economics and Business Studies from Complutense
University of Madrid. He is currently Associate Professor of Business Administration at Rey
Juan Carlos University. His eld of research focuses on Strategic Management. He has
published several articles in indexed scientic journals such as Technovation,Technological
Forecasting and Social Change, Business Research Quarterly, International Journal of Tech-
nology Management, International Journal of Production Research, International Journal of
Contemporary Hospitality Management, International Journal of Life Cycle Assessment. He is in
charge of several research projects at national and international level related to sustain-
ability and circular economy.
A.M. Romero-Martínez and F.E. García-Mui˜
na