The paper uses a new country-level, panel data set to study the effect of public sector wages on corruption. The results show that wage inequality in the public sector is an important determinant of the effectiveness of anti-corruption policies. Increasing the wages of public officials could help reduce corruption in countries with low public sector wage inequality. In countries where public sector wages are highly unequal, however, raising the wages of government employees could increase corruption. These results are robust to a wide range of empirical model specifications, estimation methods, and distributional assumptions. The relation persists when controlling for latent omitted variables, using the share of contracts in the private sector as an instrument for the public-private wage differential. Combining increases in public sector wages with policies affecting the wage distribution could help policy makers design cost-effective programs to reduce corruption in their countries.
{"title":"Effects of Public Sector Wages on Corruption: Wage Inequality Matters","authors":"Asli Demirgüç-Kunt, Michael Lokshin, V. Kolchin","doi":"10.2139/ssrn.3838088","DOIUrl":"https://doi.org/10.2139/ssrn.3838088","url":null,"abstract":"The paper uses a new country-level, panel data set to study the effect of public sector wages on corruption. The results show that wage inequality in the public sector is an important determinant of the effectiveness of anti-corruption policies. Increasing the wages of public officials could help reduce corruption in countries with low public sector wage inequality. In countries where public sector wages are highly unequal, however, raising the wages of government employees could increase corruption. These results are robust to a wide range of empirical model specifications, estimation methods, and distributional assumptions. The relation persists when controlling for latent omitted variables, using the share of contracts in the private sector as an instrument for the public-private wage differential. Combining increases in public sector wages with policies affecting the wage distribution could help policy makers design cost-effective programs to reduce corruption in their countries.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"242 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123300747","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite productivity advantages, multinational firms may operate less effectively than their local competitors in markets plagued by corruption and conflict. In natural resource sectors where firms face predation by armed groups, local firms may more easily engage in efficient corruption to buy law enforcement protection for their assets. I study a two-decade indigenization drive in Nigeria's turbulent oil sector, during which the share of local ownership grew substantially. Local takeover considerably increases oilfield output and reduces the share of nonproducing assets, despite evidence that local firms are of lower quality. Local firms increase output by reducing black-market activity: oil theft, maritime piracy, and militant violence all fall following local takeover. A simple bargaining model illustrates that political connections enable local firms to align law enforcement incentives, explaining their superior output performance. Data on anti-oil theft raids by government forces show that local firms receive preferential law enforcement protection. I find evidence that connections to high-level politicians and the security forces drive local firms' advantage in obtaining state protection and reducing criminal activity.
{"title":"The Local Advantage: Corruption, Organized Crime, and Indigenization in the Nigerian Oil Sector","authors":"Jonah Rexer","doi":"10.2139/ssrn.3894597","DOIUrl":"https://doi.org/10.2139/ssrn.3894597","url":null,"abstract":"Despite productivity advantages, multinational firms may operate less effectively than their local competitors in markets plagued by corruption and conflict. In natural resource sectors where firms face predation by armed groups, local firms may more easily engage in efficient corruption to buy law enforcement protection for their assets. I study a two-decade indigenization drive in Nigeria's turbulent oil sector, during which the share of local ownership grew substantially. Local takeover considerably increases oilfield output and reduces the share of nonproducing assets, despite evidence that local firms are of lower quality. Local firms increase output by reducing black-market activity: oil theft, maritime piracy, and militant violence all fall following local takeover. A simple bargaining model illustrates that political connections enable local firms to align law enforcement incentives, explaining their superior output performance. Data on anti-oil theft raids by government forces show that local firms receive preferential law enforcement protection. I find evidence that connections to high-level politicians and the security forces drive local firms' advantage in obtaining state protection and reducing criminal activity.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117264131","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines how political corruption affects M&A activities. By exploiting the public enforcement of the anti-corruption campaign across different regions in China, we find in a difference-in-difference (DID) setting that the reduction in corruption increases cross-region takeover activities by 40% and deal volume more than doubles. Further analysis reveals that the reduction in market entry barriers and the decreased potential for political rent extraction are two plausible economic channels behind these real effects on corporate investments. Reduction in corruption also leads to higher bidder returns and improves post-acquisition performance. Furthermore, such a campaign significantly strengthens local economic development (higher GDP per capita growth, higher general government revenue per capita, and lower unemployment rate).
{"title":"The Real Effects of Corruption on Corporate Takeover Activity: Evidence From China’s Anti-Corruption Campaign","authors":"Chenghao Huang, Zhi Jin, Siyang Tian, Eliza Wu","doi":"10.2139/ssrn.3743170","DOIUrl":"https://doi.org/10.2139/ssrn.3743170","url":null,"abstract":"This paper examines how political corruption affects M&A activities. By exploiting the public enforcement of the anti-corruption campaign across different regions in China, we find in a difference-in-difference (DID) setting that the reduction in corruption increases cross-region takeover activities by 40% and deal volume more than doubles. Further analysis reveals that the reduction in market entry barriers and the decreased potential for political rent extraction are two plausible economic channels behind these real effects on corporate investments. Reduction in corruption also leads to higher bidder returns and improves post-acquisition performance. Furthermore, such a campaign significantly strengthens local economic development (higher GDP per capita growth, higher general government revenue per capita, and lower unemployment rate).","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133439743","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-09-01DOI: 10.5709/ce.1897-9254.409
Hayder Abbas Drebee, N. Abdul-Razak, Razzaq Thiab Shaybth
This study aims to measure the impact of governance indicators on corruption in Arab countries during the period 2005-2016. Several techniques including co-integration, forecasting variance error decomposition, and impulse response function are employed. The results indicate that corruption is influenced by political stability, voice and accountability, and regulatory quality in both the short and long runs. The relative contribution of the change in regulatory quality to the change in corruption is weak, implying that there are weaknesses in laws, regulations and transparent legislation that determine the relationship between the state and the society and guarantee the integrity and rights of individuals. Therefore, fighting corruption needs to be an integral part of a comprehensive institutional and organizational reform strategy. This study is an important incentive for governments and global development organizations to improve governance performance to combat corruption. These governments may need external assistance that could be offered by the international development organizations to improve their indicators of good governance of corruption curb if Arab governments are not prepared to improve citizens' participation in this field.
{"title":"The Impact of Governance Indicators on Corruption in Arab Countries","authors":"Hayder Abbas Drebee, N. Abdul-Razak, Razzaq Thiab Shaybth","doi":"10.5709/ce.1897-9254.409","DOIUrl":"https://doi.org/10.5709/ce.1897-9254.409","url":null,"abstract":"This study aims to measure the impact of governance indicators on corruption in Arab countries during the period 2005-2016. Several techniques including co-integration, forecasting variance error decomposition, and impulse response function are employed. The results indicate that corruption is influenced by political stability, voice and accountability, and regulatory quality in both the short and long runs. The relative contribution of the change in regulatory quality to the change in corruption is weak, implying that there are weaknesses in laws, regulations and transparent legislation that determine the relationship between the state and the society and guarantee the integrity and rights of individuals. Therefore, fighting corruption needs to be an integral part of a comprehensive institutional and organizational reform strategy. This study is an important incentive for governments and global development organizations to improve governance performance to combat corruption. These governments may need external assistance that could be offered by the international development organizations to improve their indicators of good governance of corruption curb if Arab governments are not prepared to improve citizens' participation in this field.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123451139","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We conduct a hybrid experimental-observational study on college students to investigate whether the exposure to institutions of significantly heterogeneous quality affects their behavior and their stereotypes about others' behavior in a corruption experiment. The 2x2 between-subject experimental design varies: (i) the availability of information on the geographic origin of the participants; and (ii) whether participants are matched with others from the same macro-region.Experimental results show that: (i) knowing the other’s region of origin significantly increases the probability of engaging in corruption, but mostly when briber and bribee belong to different macro-regions; (ii) coming from municipalities with a lower contemporary and historical level of civic capital significantly increases the probability of engaging in corruption. Our findings suggest that the quality of institutions has a persistent effect on an individuals' internalized prosocial norms, and that these effects are evident even in a highly controlled laboratory setting.
{"title":"Corruption and Within-Country Stereotypes","authors":"P. Buonanno, Marcello Puca, Patrizia Sbriglia","doi":"10.2139/ssrn.3617590","DOIUrl":"https://doi.org/10.2139/ssrn.3617590","url":null,"abstract":"We conduct a hybrid experimental-observational study on college students to investigate whether the exposure to institutions of significantly heterogeneous quality affects their behavior and their stereotypes about others' behavior in a corruption experiment. The 2x2 between-subject experimental design varies: (i) the availability of information on the geographic origin of the participants; and (ii) whether participants are matched with others from the same macro-region.Experimental results show that: (i) knowing the other’s region of origin significantly increases the probability of engaging in corruption, but mostly when briber and bribee belong to different macro-regions; (ii) coming from municipalities with a lower contemporary and historical level of civic capital significantly increases the probability of engaging in corruption. Our findings suggest that the quality of institutions has a persistent effect on an individuals' internalized prosocial norms, and that these effects are evident even in a highly controlled laboratory setting.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"98 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124088610","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this essay I present an interpretation of economic history through the prism of financial institutions, and analyze the blockchain technology in this context. The role of institutions has gone from defining and enforcing property rights to the more active role of preventing externalities and driving the whole economy out of crises. With two exemples (the Central Clearing Platform regulation and central bank communication) I show that such an active role can introduce inefficiencies related to the cost of trust. I propose an interpretation of blockchains as "autonomous institutions" and show how they can alleviate this cost of trust. In terms of the Coase theorem, their use reduces the cost of transacting thereby making institutions less relevant. If blockchains ever reach broad use, traditional institutions will likely have to adapt. I conclude that we could be on the verge of an important change in the institutional landscape.
{"title":"Where do Blockchains Fit in the History of Financial Institutions?","authors":"Louis Bertucci","doi":"10.2139/ssrn.3580957","DOIUrl":"https://doi.org/10.2139/ssrn.3580957","url":null,"abstract":"In this essay I present an interpretation of economic history through the prism of financial institutions, and analyze the blockchain technology in this context. The role of institutions has gone from defining and enforcing property rights to the more active role of preventing externalities and driving the whole economy out of crises. With two exemples (the Central Clearing Platform regulation and central bank communication) I show that such an active role can introduce inefficiencies related to the cost of trust. I propose an interpretation of blockchains as \"autonomous institutions\" and show how they can alleviate this cost of trust. In terms of the Coase theorem, their use reduces the cost of transacting thereby making institutions less relevant. If blockchains ever reach broad use, traditional institutions will likely have to adapt. I conclude that we could be on the verge of an important change in the institutional landscape.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"126 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131932389","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
María Gutiérrez Urtiaga, Stavriana Hadjigavriel, Susana Gago Rodríguez
We exploit the UK Bribery Act of 2010 to test whether the pricing of audit changes with the level of corruption/bribery in the firm’s business environment. Adopting a triple difference design, we show that affected firms operating in countries perceived as more corrupt, where bribery may be necessary to get contracts, pay higher audit fees after the law enforcement. Moreover, we show that the increase in audit fees (i) is not the result of changes in the financial reporting quality of these firms; and (ii) is not due to higher compliance costs for companies that have a larger number of subsidiaries in corrupt countries. The results are consistent with understanding this increase in audit fees mainly as a form of compensation for the higher perceived litigation and reputation costs for the auditors, rather than as an additional price paid for significant increases in the compliance and monitoring costs. Moreover, subject firms that operate in countries with low corruption indexes and low bribery risk experience no change in audit fees.
{"title":"Bribes and Audit Fees","authors":"María Gutiérrez Urtiaga, Stavriana Hadjigavriel, Susana Gago Rodríguez","doi":"10.2139/ssrn.3552122","DOIUrl":"https://doi.org/10.2139/ssrn.3552122","url":null,"abstract":"We exploit the UK Bribery Act of 2010 to test whether the pricing of audit changes with the level of corruption/bribery in the firm’s business environment. Adopting a triple difference design, we show that affected firms operating in countries perceived as more corrupt, where bribery may be necessary to get contracts, pay higher audit fees after the law enforcement. Moreover, we show that the increase in audit fees (i) is not the result of changes in the financial reporting quality of these firms; and (ii) is not due to higher compliance costs for companies that have a larger number of subsidiaries in corrupt countries. The results are consistent with understanding this increase in audit fees mainly as a form of compensation for the higher perceived litigation and reputation costs for the auditors, rather than as an additional price paid for significant increases in the compliance and monitoring costs. Moreover, subject firms that operate in countries with low corruption indexes and low bribery risk experience no change in audit fees.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127456129","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The International Commission Against Impunity in Guatemala (CICIG) represents an innovative effort to curb criminal threats to democratic rule and to strengthen state capacity that diverged from the dominant mode of technical assistance. Working through treaty-based international authority, this “hybrid” U.N.-backed mission combined international and national capacities working through Guatemalan laws and courts. The Commission successfully investigated and helped prosecute multiple high-ranking Guatemalan officials, ex-military officers and business elites. Those investigations precipitated anti-corruption protests that ousted the sitting president and vice president in the “Guatemalan Spring” of 2015. CICIG investigations led to 1,540 indictments in 120 cases involving over 70 illicit networks. The mission showed Guatemalans that the rule of law can be applied even to the most powerful, had far-reaching political impact, and contributed to the effectiveness of the Attorney-General’s office.
Yet by the time the mission closed in 2019 after twelve years of operation, a cloud hung over its legacy. As CICIG’s cases ensnared an expanding array of top businessmen, officials and political parties, economic and political elites launched an anti-CICIG media campaign and hired lobbyists to undermine what had been strong bipartisan support for the mission’s biggest financial backer, the United States. President Jimmy Morales, elected on an anti-corruption platform in 2015, turned against the Commission after his brother and son were indicted. Morales and his allies won some support from the Trump administration in decrying the Commission as a violation of national sovereignty. Yet during its final years, CICIG’s support in public opinion polls never fell below 70%.
Leaving behind a complex legacy, CICIG both inspired a jaded Guatemalan citizenry to stand up to corrupt officials and galvanized former political enemies around the common perceived threat of the Commission. This report evaluates the history of CICIG to analyze its impact on Guatemalan political life and to draw lessons for future hybrid anti-impunity missions.
{"title":"Too Much Success? The Legacy and Lessons of the International Commission Against Impunity in Guatemala","authors":"Charles T. Call, Jeffrey T. Hallock","doi":"10.2139/ssrn.3526865","DOIUrl":"https://doi.org/10.2139/ssrn.3526865","url":null,"abstract":"The International Commission Against Impunity in Guatemala (CICIG) represents an innovative effort to curb criminal threats to democratic rule and to strengthen state capacity that diverged from the dominant mode of technical assistance. Working through treaty-based international authority, this “hybrid” U.N.-backed mission combined international and national capacities working through Guatemalan laws and courts. The Commission successfully investigated and helped prosecute multiple high-ranking Guatemalan officials, ex-military officers and business elites. Those investigations precipitated anti-corruption protests that ousted the sitting president and vice president in the “Guatemalan Spring” of 2015. CICIG investigations led to 1,540 indictments in 120 cases involving over 70 illicit networks. The mission showed Guatemalans that the rule of law can be applied even to the most powerful, had far-reaching political impact, and contributed to the effectiveness of the Attorney-General’s office.<br><br>Yet by the time the mission closed in 2019 after twelve years of operation, a cloud hung over its legacy. As CICIG’s cases ensnared an expanding array of top businessmen, officials and political parties, economic and political elites launched an anti-CICIG media campaign and hired lobbyists to undermine what had been strong bipartisan support for the mission’s biggest financial backer, the United States. President Jimmy Morales, elected on an anti-corruption platform in 2015, turned against the Commission after his brother and son were indicted. Morales and his allies won some support from the Trump administration in decrying the Commission as a violation of national sovereignty. Yet during its final years, CICIG’s support in public opinion polls never fell below 70%.<br><br>Leaving behind a complex legacy, CICIG both inspired a jaded Guatemalan citizenry to stand up to corrupt officials and galvanized former political enemies around the common perceived threat of the Commission. This report evaluates the history of CICIG to analyze its impact on Guatemalan political life and to draw lessons for future hybrid anti-impunity missions.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124571542","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies an increasingly popular anti-corruption policy --- corporate debarment or blacklisting --- to understand how both disclosing illicit corporate practices and the sanctions for these practices affect firm and worker outcomes. I exploit a unique policy change in Brazil, implemented in 2014, that imposed stricter penalties for corrupt firms. I combine the universe of firms that were publicly debarred between 2014 and 2016 with detailed matched employer-employee administrative data. Using a matched difference-in-differences approach, I find that debarment is associated with a sizable decline in employment and an increase in the probability of exiting the formal sector. I also document that workers' annual earnings fall by about 26 percent after debarment. The impacts are driven by lost revenues from government contracts. Reputational effects are limited as workers who have previously worked in debarred firms only experience small earnings losses. The results shed light on the costs to workers when their employers are debarred in weighing the consequences of corruption crackdown.
{"title":"The Employee Costs of Corporate Debarment","authors":"Christiane Szerman","doi":"10.2139/ssrn.3488424","DOIUrl":"https://doi.org/10.2139/ssrn.3488424","url":null,"abstract":"This paper studies an increasingly popular anti-corruption policy --- corporate debarment or blacklisting --- to understand how both disclosing illicit corporate practices and the sanctions for these practices affect firm and worker outcomes. I exploit a unique policy change in Brazil, implemented in 2014, that imposed stricter penalties for corrupt firms. I combine the universe of firms that were publicly debarred between 2014 and 2016 with detailed matched employer-employee administrative data. Using a matched difference-in-differences approach, I find that debarment is associated with a sizable decline in employment and an increase in the probability of exiting the formal sector. I also document that workers' annual earnings fall by about 26 percent after debarment. The impacts are driven by lost revenues from government contracts. Reputational effects are limited as workers who have previously worked in debarred firms only experience small earnings losses. The results shed light on the costs to workers when their employers are debarred in weighing the consequences of corruption crackdown.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"167 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124668421","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We explore the dark side of legitimacy, i.e., situations when legitimacy is largely taken-for-granted while negative consequences for society are not revealed. We build on a case study of anti-corruption at small and medium sized enterprises (SMEs). Normally, SMEs do not receive much public attention and are not scrutinized. As a result, their legitimacy is not contested, but taken for granted. By contrast, MNCs often have problems with societal approval due to higher public scrutiny, NGO activism, and frequent scandals reported in the media. We identify that, typically, SMEs seek to maintain and justify their status-quo of taken-for-granted legitimacy by applying a set of rationalizations (e.g., “we are too small to matter”; “if everybody else does it...”). We argue that such SMEs avoid anti-corruption policies and public surveillance to deliberately “stay off the anti-corruption radar”. Surprisingly though, our inductive study reveals that there are two dynamic paths away from the dark side of legitimacy, and that emotions tend to be a crucial trigger for such dynamics. We thus contribute to the institutional theory literature by arguing that emotions, both positive and negative, are crucial for developing theory on institutional change in the absence of clear or dominant institutional pressures.
{"title":"Institutional and Emotional Dynamics on the Dark Side of Legitimacy: The Case of Anti-corruption at SMEs","authors":"Stefan Schembera, A. Scherer","doi":"10.2139/ssrn.3484967","DOIUrl":"https://doi.org/10.2139/ssrn.3484967","url":null,"abstract":"We explore the dark side of legitimacy, i.e., situations when legitimacy is largely taken-for-granted while negative consequences for society are not revealed. We build on a case study of anti-corruption at small and medium sized enterprises (SMEs). Normally, SMEs do not receive much public attention and are not scrutinized. As a result, their legitimacy is not contested, but taken for granted. By contrast, MNCs often have problems with societal approval due to higher public scrutiny, NGO activism, and frequent scandals reported in the media. We identify that, typically, SMEs seek to maintain and justify their status-quo of taken-for-granted legitimacy by applying a set of rationalizations (e.g., “we are too small to matter”; “if everybody else does it...”). We argue that such SMEs avoid anti-corruption policies and public surveillance to deliberately “stay off the anti-corruption radar”. Surprisingly though, our inductive study reveals that there are two dynamic paths away from the dark side of legitimacy, and that emotions tend to be a crucial trigger for such dynamics. We thus contribute to the institutional theory literature by arguing that emotions, both positive and negative, are crucial for developing theory on institutional change in the absence of clear or dominant institutional pressures.","PeriodicalId":326708,"journal":{"name":"ERN: Institutions & Corruption (Topic)","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128578927","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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