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The Shareholder–Manager Relationship and Its Impact on the Likelihood of Firm Bribery

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Abstract

We examine the impact on firm bribery of two corporate governance devices heavily studied in corporate governance research—i.e., separation of ownership and control, and equity share of the largest shareholder. In addition, we investigate the impact of the principal–owner’s gender on firm bribery. From agency theory, we predict that firms with the owner also acting as a manager (owner–manager) are more likely to engage in bribery compared to their counterparts with separation of ownership and control. We argue that an increase of the equity share of the largest shareholder can either increase or decrease firm bribery likelihood depending on the net cost-benefit effect of such bribery actions. In addition, we predict that bribery is more likely to occur when the principal–owner is male rather than female. Using a rich dataset of the World Bank Enterprise Surveys of 2002–2005, we find that the equity share of the largest shareholder is negatively and male principal–owner is positively associated with the likelihood of firm bribery. Furthermore, we reveal that owner–manager is more likely to bribe when the principal–owner is male rather than female. We also observe that the effect of owner–manager is smaller as the equity share of the largest shareholder increases.

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Notes

  1. Some other studies that may be related to the current investigation are those that link corporate governance devices such as manager’s behavior, outside board of directors, audit committees, managerial incentives and CEO duality to corporate fraud, accounting fraud or financial restatements (e.g., Cohen et al. 2011; Beasley 1996; Abbott et al. 2004; Erickson et al. 2006). However, the separation of ownership and control is still unexplored in relation to both corporate/financial fraud and firm bribery.

  2. Further information, such as the sampling method and questionnaire items, of the World Bank Enterprise Surveys dataset can be found on and downloaded from the website www.enterprisesurveys.org.

  3. Note that, in discrete response models, the individual-level variance is a function of the mean of the fitted value of the dependent variable, which depends on the values of explanatory variables in the model (see Goldstein 2003 and Rasbash et al. 2009 for technical details).

  4. Moreover, Alatas et al. (2009), using an experimental design in four countries, find evidence that women are less likely to offer bribes and more likely to punish corrupt behavior in Australia, but not in India, Indonesia, and Singapore. They argue that the differential effect of gender on corrupt behavior may be culture specific. In this study, we estimated the interaction effect of the principal–owner’s gender and the masculinity index from Hofstede’s cultural dimensions. We find that the sign of this interaction effect is positive but insignificant. The positive sign means that the effect of a male principal–owner on the likelihood of bribery is greater in countries with a more masculine culture, as expected. Similarly, when we estimate the interaction effect for a manager–owner and the individualism index, we find a negative but insignificant coefficient. The negative sign means that the effect of a manager–owner on the likelihood of bribery is smaller in countries with a more individualistic culture. We speculate that the insignificance is due to our small sample size, dropped to only 34 countries because of missing culture data.

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Acknowledgments

We thank the Section Editor of the Journal Business Ethics and two anonymous referees for valuable comments and suggestions. We also thank, for their constructive comments and helpful suggestions, participants of the ACED (Antwerp Centre of Evolutionary Demography, University of Antwerp, Belgium) Brown Bag Seminar. Arjen van Witteloostuijn gratefully acknowledges the financial support through the Odysseus Programme of the Flemish Science Foundation (FWO).

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Correspondence to Dendi Ramdani or Arjen van Witteloostuijn.

Appendix

Appendix

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Table 4 List of countries and number of respondents

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Ramdani, D., van Witteloostuijn, A. The Shareholder–Manager Relationship and Its Impact on the Likelihood of Firm Bribery. J Bus Ethics 108, 495–507 (2012). https://doi.org/10.1007/s10551-011-1105-5

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