Publicly traded companies and firms based in countries that have adopted anti-corruption practices are somewhat less likely to engage in bribery. That’s according to new research by Assistant Professor Yujin Jeong, whose findings shed light on a subject that is not well understood and underscores the value of anti-corruption policies and regulations.
Jeong was drawn to the topic of bribery because it is fairly common in international business but not well documented.
Although it is easy enough to grasp why one party demands an illicit payment, Jeong sought to understand more about the supply side of the equation: why do businesses pay bribes, or decline to do so?
Corruption is one of the more mysterious aspects of business. In a discipline known for being data- driven, it is difficult to account for all of the players who skirt the rules.
And while people often make assumptions about bribes and business, there is little data on actual bribes. “Nobody wants to reveal whether they paid a bribe, not to mention how much they paid,” Jeong explained.
She found one significant exception to this in the United Nations’ Oil-for-Food Program (1996–2003). The program aimed to alleviate Iraqis’ suffering caused by the UN sanctions imposed on Iraqi oil exports. Starting in 2000, the Iraqi government exploited the system and collected $229 million in illicit surcharges from its oil buyers.
An official investigation yielded unprecedented amounts of data on bribery: some 187 companies from 51 different countries participated in the program, and most paid bribes.
Jeong’s study, co-authored by Professor Robert J. Weiner of George Washington University, examined what influences a firm’s decision to pay a bribe in an environment of “pay to play,” where bribery is likely to bring high rewards but also presents high risks.
How would companies from around the world respond differently facing the same requests for bribes? What would explain the variability in the amount of bribes paid by firms in international business?
The researchers found that businesses’ owner- ship structure was a significant factor. Owners and managers in privately held firms that were less subject to public scrutiny were more likely to pay bribes.
The perception that a certain country was predisposed toward corruption turned out not to be a strong indicator.
“Many people tend to think that companies from less-developed countries may be more prone to corruption,” said Jeong. Her research, however, showed no significant correlation between “perceived corruption” and actual corruption.
Cross-border bribery has long been illegal in the United States through the Foreign Corrupt Practices Act of 1977. In 1999, the Organization for Economic Cooperation and Development (OECD) adopted the Anti-Bribery Convention; as of May 2013, 40 countries were on board. Some non-OECD countries, however, have no explicit ban on bribery.
Although some companies based in countries covered by the convention did indeed pay bribes, they were somewhat less likely to do so. These findings “provide optimism for anti-corruption efforts by the international community” having a deterrence effect, according to Jeong.
While these findings have provided some groundbreaking empirical research and earned Jeong significant recognition, they come with one big caveat: money talks.
The financial incentives involved in paying bribes are a key motivator for private-sector bribery, and one that often overrides the company’s public disclosure requirements or its home-country rule of law. Different companies may be more or less likely to engage in bribery, but in the end, bribery is widespread across many business sectors. Regulations may reduce the prevalence of bribery, but—at least in this case—they did not eliminate it.
For that reason, Jeong recommends a more refined policy approach that is focused at the company level.
“Private companies often circumvent the [anti- bribery] convention,” she explained. “We should work to improve corporate governance at the local level and strengthen monitoring and legal enforcement at the international level.”