Effects of Corruption on Firm Performance

Transparency International where the index ranks 28 of the world’s largest economies according to the perceived likelihood of companies from these countries to pay bribes abroad. It is based on the views of business executives as captured by Transparency Internationally 2011 Bribe Payers Survey. The index shows that there is no country among the 28 major economies whose companies are perceived to be wholly clean and that do not engage in bribery.

The results indicate that bribery is perceived to be common across all sectors.

What is interesting and also surprising is that for the first time the Bribe Payers Survey was also asking business executives about bribing among companies and the finding was that the bribing among companies is almost as high as bribing of public officials across all sectors. This shows that corruption does not encompass only the public sector but is also a common practice within the private sector. So why are companies engaging private-to-private bribery?

The answer is almost the same as for the public sector, to secure business and facilitate the functioning of hidden business cartels.

Large companies have power toward suppliers and they can Nora to use tenet Innocence toward suppliers Dye management Dress. As corruption has more forms, bribery through offering inappropriate gifts and hospitality is also very common in private-to-private bribery. As stated by the Transparency International and what we agree with is that private- to-private bribery remains largely overlooked by researchers and policy-makers and that its impact is likely to be significant.

Its consequences or effects are felt through: – the entire supply chain, – distorting markets and competition, – increasing costs to firms, penalizing the smaller companies that cannot afford to compete on these terms and – penalizing those firms with high integrity that refuse to compete on these terms.

Get quality help now

Bella Hamilton

Verified

Proficient in: Economics

5 (234)

“ Very organized ,I enjoyed and Loved every bit of our professional interaction ”

+84 relevant experts are online

Hire writer

This not only prevents a fair and efficient private sector but also reduces the quality of products and services to the consumer. Bribery brings financial benefit in the form of negotiated contracts only at first glance.

The corruption is harmful for the company in the long run so the answers why avoid corruption are: because the bribery diverts attention from the quality of the products to the value of made and future bribes, because with the first paid ribs the company starts to lose control (the next one will have to be higher), because the companies will not be able to complain if they do not get what they paid for, because the bribes violate the law and company is exposed to extortion, because it is hard to cancel a corrupt relationship, because serious consequences are at the stake (penalties, reputation… , because sooner or later the consequences will be felt? That corruption reduces sales growth, firm competitiveness, lowers investment and employment growth and that corruption is quite unlikely to have any positive effects s confirmed in the Journal Assessing the Effects of Corruption and Crime on Firm Performance (Alexandra Gavin, 2001).

The data used in the research is based on private sector survey conducted by the World Bank and the Inter-American Development Bank in 1999 where about 100 middle and top managers in 29 countries (20 of them from Latin American) were questioned about their perceptions on several areas of government performance, including predictability of policies, reliability of the Judiciary, problems with corruption, crime and public services.

The results of the research show that the effect of corruption on the economic outcomes of the firms does exist. The results also indicate that corruption and crime substantially reduce competitiveness and that corruption and effective bureaucratic interference go hand in hand which is higher in firms that are more likely to pay bribes. Corruption raises operational costs and creates uncertainty since increased involvement increases chances to get caught.

Corruptive acts like bribing, stealing Ana tenet AT government resources Dye puddle McCall cannot De alertly seen or nave direct effects on the firms, but it can have huge indirect effects. Public finances will deteriorate, creating uncertainty and raising the cost of credit. Infrastructure will crumble, public services will worsen and the general climate of business will suffer as well.

Effects of corruption can be seen as slower economic growth which means that corruption is bad for growth and most empirical studies confirm that, than lower foreign direct investment which means that where corruption is high enough foreign investors will avoid the country and if corruption is not allowed but is present, than foreign investors will prefer to associate with local partners because of the importance of their knowledge about how to deal with present corruption so Joint – ventures instead of owned subsidiaries are preferred and if corruption is not a problem than foreign investors will prefer wholly-owned subsidiaries.