Bribery and corruption: their relationships with resource constraints, innovation and OFDI

Zhong, Chong (2021) Bribery and corruption: their relationships with resource constraints, innovation and OFDI. PhD thesis, Birkbeck, University of London.

Abstract

This thesis incorporates three papers related to the topic of bribery or corruption, which are in a format suitable for publication in peer review journals. Each of them constructs hypotheses from different theoretical perspectives (resource dependency theory; the behavior theory of a firm; institutional theory), uses different databases (the World Value Survey, the World Bank Enterprises Survey, and the unique datasets I complied on China’s anticorruption and OFDI), and implements different statistical techniques (regressions; instrumental variables; propensity score match; difference-in-difference; triple differences) to reflect my understanding about this topic. The respective abstracts for the three papers are as follows. Paper 1: The pervasiveness of bribery has generated much interest in its causes, and our current understanding is limited to the demand side of corrupt government officials based on the logic of the institutional theory. Different from the existing literature, this paper adopts a resource dependence perspective to explore the supply side of bribery, arguing that managers are motivated to use illegal non-market strategies to counterbalance their position confronting to resource constraints. In addition, if the channel of legal tactics is at play, the positive relationship between resource constraints and bribery will be mitigated. Specifically, utilizing data from the World Value Survey covering 18,223 managers from 55 countries across 4 years, we find that the regulatory efficiency of a nation has a negative effect on managers’ willingness to justify bribery. Strong political rights of a nation strengthen the above negative relationship, but this effect is less significant if managers work in the private sector. We intend to contribute to the existing literature by offering a more subtle perspective that accounts for the possibility that bribery can be an active strategy to overcome resource constraints imposed by power imbalance. Paper 2: Why might an innovative strategy trigger illegal behavior? This study proposes that firms will resort to problemistic search according to the anticipated negative feedback of a strategy rather than actual outcomes. Using data from the World Bank Enterprises Survey, we find that investing in R&D will lead to bribery in developing countries where unfavorable factors will diminish the expected returns, confirming that the discrepancy between the expectation of innovation and the estimation of its actual achievement is a source of illegal behavior. To extend the boundary of the behavior theory of the firm (BTOF), we borrow ideas from the general strain theory (GST), which identifies the other two mechanisms of illegal behavior of organizations: the discrepancy between aspirations and expectations; and the discrepancy between fair outcomes and unfair outcomes. The results support the hypotheses that aspirational strain and unfair strain intensify the positive relationship between R&D input and bribery. However, when a firm has the experience of R&D output, it will mitigate a firm’s tendency to bribe since it has accumulated the relevant knowledge. Our intended contribution is to extend the focus of research from behavior changes after the exact negative feedback to behavioral changes based on the anticipated negative feedback. Shedding lights on a sociological theory, we enrich the definition of negative feedback that not only drives from the discrepancy between expectation and actual outcomes, but also stems from the discrepancy between aspiration and expectation, fair outcomes and unfair outcomes. Paper 3: While research on the determinants of firm internationalization from emerging markets increasingly recognizes the influence of government as a significant institutional force, little attention has been paid to the fact that institutional pressures can be fragmented and institutional logics on firms’ OFDI strategy can be contending. There are two institutional explanations for China’s booming OFDI over the last decade: institutional support and institutional escapism, based on external legitimacy and internal efficiency. Given institutional complexity and dynamics, how a change in one facet of institutions influences joint institutional forces and hence firms’ OFDI decisions largely unknown. In this study we argue that while institutional support remains promoting aggregate OFDI from China, the recent anticorruption campaign negatively affects private enterprises’ OFDI as it mitigates the escapism motivation. The anticorruption campaign plays the role in impeding OFDI through the mechanisms of improving financing efficiency and breaking down local protectionism. Our intended contribution is to integrate the perspective of institutional complexity and institutional dynamics. Using the recent anticorruption campaign in China as an exogenous shock, we test how change one facet of institutions radically influences the firms’ OFDI decisions under the co-existed institutional logics with different directed forces.

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