Skip to main content

Strategic and transactional costs of corruption: perspectives from Vietnamese firms

An Erratum to this article was published on 07 May 2016

Abstract

Focusing on Vietnam, this article explores what costs and benefits a firm may get when it engages in corrupt activities. The research employs three theoretical perspectives, namely institutional, rent-seeking and resource-based theories, to shed light on different types of costs and benefits of corruption at the firm level, using a combination of case studies and quantitative methods. The analysis addresses different types of costs and benefits of corruption for firms. The quantitative analysis (supplemented by qualitative interviews) draws on samples of Vietnamese firms from the Provincial Competitiveness Index (PCI) and the General Statistics Office’s firm surveys in 2009, 2010 and 2011. Results show that firms engage in corrupt activities primarily to follow the ‘rules of the game’. Commonly accepted benefits of corruption such as transactional benefits (i.e., better administrative services) or access to business opportunities hold true only for certain firms. On the other hand, corruption has harmful effects on a firm’s strategic capability by eroding the integrity culture, demotivating innovation and risking the firm’s reputation. These harmful effects are normally hidden and not well-recognized by firms.

This is a preview of subscription content, access via your institution.

Notes

  1. 1.

    The distinction here is between state-owned enterprises and private companies without Government involvement.

  2. 2.

    For limitations of our dataset, see the Discussion section below.

  3. 3.

    When we used another proxy for prevalence of informal payment in neighbourhood – average IP per firm in each district - we got the same results. That is, firms in districts which had higher average informal payments would pay more.

  4. 4.

    The quantitative approach was complemented by in-depth fieldwork with companies scattered around Vietnam. We conducted interviews with four firms operating in the pharmaceutical, banking and construction sectors. Respectively, we call them: 1. Hipon Pharma Co (26 staff, approximately VND 4 billion in monthly revenue, and is foreign-owned. It mainly operated in the Northern provinces, and its key clients are big hospitals in urban centers and provinces); 2. HCM Pharma Co (20 staff, approximately VND 5 billion in monthly revenue, is a Vietnamese Joint-Stock. 40 % of its revenue comes from dealing with military hospitals); 3. Diaphuong Construction Co (66 employees, around VND 4 billion in monthly revenue; Vietnamese Joint-stock company. It mainly operates in residential and industrial construction projects in Red River Delta Provinces); and 4. Hanoi Bank (monthly revenue equals VND 3 trillion in loans; Vietnamese state-owned company; it mainly caters to individuals and organizations in the west side of Hanoi).

  5. 5.

    This indicator totals all inspections, including tax, professional, and other inspections.

  6. 6.

    For the technical inefficiency effect model, the Gamma test showed that the evidence for technical inefficiency existence (u it ) in large firms was clearer and accounting for a bigger proportion in the error term (v it - u it ). The estimated results for both small and large firms were consistent with the pooled estimations above. However, stronger impacts were found in the large firm group estimation in comparison with the small group.

References

  1. 1.

    Aldrich, H., & Fiol, M. (1994). Fools rush in? The institutional context of industry creation. Academy of Management Review, 19(4), 645–670.

    Google Scholar 

  2. 2.

    Ayaydın, H., & Hayaloglu, P. (2014). The effect of corruption on firm growth: evidence from firms in Turkey. Asian Economic and Financial Review, 4(5), 607–624.

    Google Scholar 

  3. 3.

    Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 771–792.

    Google Scholar 

  4. 4.

    Brass, D. J., Butterfield, K. D., & Skaggs, B. C. (1998). Relationships and unethical behavior: a social network perspective. Academy of Management Review, 23, 14–31.

    Google Scholar 

  5. 5.

    de Jong, G., Phan, A. T., & van Ees, H. (2012). Which entrepreneurs bribe and what do they get from it? Exploratory evidence from Vietnam. Entrepreneurship Theory and Practice, 36(2), 323–345.

    Article  Google Scholar 

  6. 6.

    Depocen, 2011.Current status of corruption in business sector in Vietnam. Research Report to Integrity and Transparency in Business Initiative for Viet Nam (ITBI), VCCI, Hanoi

  7. 7.

    DiMaggio, P., & Powell, W. (1983). The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 42, 113–123.

    Google Scholar 

  8. 8.

    Grant, R. M. (1996). Toward a knowledge-based theory of the firm. Strategic Management Journal, 17(Winter), 109–122.

    Article  Google Scholar 

  9. 9.

    Hallward-Driemeier, M., Wallsten, S., & Xu, L. C. (2006). Ownership, investment climate and firm performance. The Economics of Transition, 14(4), 629–647.

    Article  Google Scholar 

  10. 10.

    Hung, H. (2008). Normalized collective corruption in a transitional economy: small treasuries in large Chinese enterprises. Journal of Business Ethics, 79, 69–83.

    Article  Google Scholar 

  11. 11.

    Kimuyu, P. (2007). Corruption, firm growth and export propensity in Kenya. International Journal of Social Economics, 34(3), 197–217.

    Article  Google Scholar 

  12. 12.

    Lou, Y. (2002). Corruption and organization in Asian management system. Asia Pacific Journal of Management, 19, 405–422.

    Article  Google Scholar 

  13. 13.

    Malesky, E., & Gueorguiev, D. (2012). Foreign investment and bribery: a firm-level analysis of corruption in Vietnam. Journal of Asian Economics, 23, 111–129.

    Article  Google Scholar 

  14. 14.

    Malesky, E., Gueorguiev, D., & Jensen, N. (2014). Monopoly money: foreign investment and bribery in Vietnam, a survey experiment. Research paper at Duke University.

  15. 15.

    Meon, P. G., & Sekkat, K. (2005). Does corruption grease or sand the wheels of growth? Public Choice, 122(1), 69–97.

  16. 16.

    Meyer, J., & Rowan, B. (1977). Institutionalized organizations: formal structure as myth and ceremony. American Journal of Sociology, 83(2), 340–363.

    Article  Google Scholar 

  17. 17.

    Nguyen, T. T., & van Dijk, M. A. (2012). Corruption, growth, and governance: Private vs. state-owned firms in Vietnam. Journal of Banking & Finance, 36, 11.

    Google Scholar 

  18. 18.

    Nguyen, V. T. (2005). Learning to trust: a study of inter-firm trust dynamics in Vietnam. Journal of World Business, 40(2), 203–221.

    Article  Google Scholar 

  19. 19.

    Nguyen, V. T., Le, T. B. N., & Bryant, S. (2013). Sub-national institutions, export strategy, and firm performance: a multilevel study of private manufacturing firms in Vietnam. Journal of World Business, 48, 68–76.

    Article  Google Scholar 

  20. 20.

    North, D. (1990). Institutions, institutional change and economic performance. Cambridge, New York: Cambridge University Press.

    Book  Google Scholar 

  21. 21.

    Scott, W. R. (1995). Institutions and organizations. Thousand Oaks, CA: Sage.

    Google Scholar 

  22. 22.

    Tran, T. B., Grafton, R. Q., & Kompas, T. (2009). Institutions matter: the case of Vietnam. The Journal of Socio-Economics, 38(1), 1–12.

    Article  Google Scholar 

  23. 23.

    Tromme, Mathieu, 2015. Corruption and Corruption Research in Vietnam: An Overview. Crime, Law and Social Change (this issue)

  24. 24.

    Venard, B. (2009a). Organizational isomorphism and corruption: an empirical research in Russia. Journal of Business Ethics, 89, 59–76.

    Article  Google Scholar 

  25. 25.

    Venard, B. (2009b). Corruption in emerging countries: a matter of isomorphism. Management, 12(1), 1–27.

    Google Scholar 

  26. 26.

    Venard, B., & Hanafi, M. (2008). Organizational isomorphism and corruption in financial institutions: empirical research in emerging countries’. Journal of Business Ethics, 81, 481–498.

    Article  Google Scholar 

  27. 27.

    Wei, S. and Kaufmann, D., 1999. Does grease money speed up the wheels of commerce? The world bank policy research working paper no 2254

  28. 28.

    Welter, F., & Smallbone, D. (2011). Institutional perspective on entrepreneurial behavior in changing environment. Small Business Management Journal, 49(1), 107–125.

    Article  Google Scholar 

  29. 29.

    World Bank, 2012. Report on corruption from the perspective of citizens, firms, and public officials-results of sociological surveys. Hanoi

Download references

Acknowledgments

The authors thank Lien Nguyen, Edmund Malesky, participants of the Symposium, peer reviewers, and the guest editors of this issue for valuable comments on an earlier draft. Financial support from DFID is acknowledged.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Thang V. Nguyen.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Nguyen, T.V., Ho, B.D., Le, C.Q. et al. Strategic and transactional costs of corruption: perspectives from Vietnamese firms. Crime Law Soc Change 65, 351–374 (2016). https://doi.org/10.1007/s10611-016-9609-7

Download citation

Keywords

  • Technical Inefficiency
  • Young Firm
  • Informal Payment
  • Enterprise Survey
  • Informal Cost