Skip to main content

Advertisement

SpringerLink
Log in

Corruption and New Product Innovation: Examining Firms’ Ethical Dilemmas in Transition Economies

  • Original Paper
  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

Corruption as a non-market strategy for firms has gained increasing attention in the field of strategy management. However, the effect of corruption on innovation is unclear, especially in the context of transition economies. Using institutional theory, we examine the relationship between corruption and new product innovation and identify the contextual conditions of the relationship. Using the World Bank Enterprise Survey data from China, our empirical results show that corruption has a positive effect on firms’ new product innovation. Moreover, we find that policy instability and competitive threats from the informal sector positively moderate the relationship between corruption and new product innovation. Using post hoc analysis, we find that the potentially positive effect of corruption on new product innovation is the consequence of inherent institutional weaknesses in transition economies; as the level of institutional development increases, the effect of corruption on firms’ new product innovation will gradually decrease. Overall, our findings provide new insights into understanding corrupt behaviors in transition economies and present managerial implications for firms’ ethical dilemmas in a transition economy context. We argue that the key to overcoming these ethical dilemmas lies in promoting pro-market institutional reform to reduce the potential benefits of corruption.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. https://www.transparency.org.

  2. http://www.gov.cn/jrzg/2013-11/15/content_2528179.htm.

References

  • Aguilera, R. V., & Vadera, A. K. (2008). The dark side of authority: Antecedents, mechanisms, and outcomes of organizational corruption. Journal of Business Ethics, 77(4), 431–449.

    Google Scholar 

  • Alexeev, M., & Song, Y. (2013). Corruption and product market competition: An empirical investigation. Journal of Development Economics, 103, 154–166.

    Google Scholar 

  • Anokhin, S., & Schulze, W. S. (2009). Entrepreneurship, innovation, and corruption. Journal of Business Venturing, 24(5), 465–476.

    Google Scholar 

  • Assenova, V. A., & Sorenson, O. (2017). Legitimacy and the benefits of firm formalization. Organization Science, 28(5), 804–818.

    Google Scholar 

  • Athanasouli, D., & Goujard, A. (2015). Corruption and management practices: Firm level evidence. Journal of Comparative Economics, 43(4), 1014–1034.

    Google Scholar 

  • Ayyagari, M., Demirgüç-Kunt, A., & Maksimovic, V. (2014). Bribe payments and innovation in developing countries: Are innovating firms disproportionately affected? Journal of Financial and Quantitative Analysis, 49(1), 51–75.

    Google Scholar 

  • Bardhan, P. (1997). Corruption and development: a review of issues. Journal of Economic Literature, 35(3), 1320–1346.

    Google Scholar 

  • Baucus, M. S., Norton, W. I., Jr., Baucus, D. A., & Human, S. E. (2008). Fostering creativity and innovation without encouraging unethical behavior. Journal of Business Ethics, 81(1), 97–115.

    Google Scholar 

  • Beets, S. D. (2005). Understanding the demand-side issues of international corruption. Journal of Business Ethics, 57(1), 65–81.

    Google Scholar 

  • Bhagwati, J. (1982). Directly unproductive, profit-seeking (DUP) activities. Journal of Political Economy, 90(5), 988–1002.

    Google Scholar 

  • Birhanu, A. G., Gambardella, A., & Valentini, G. (2016). Bribery and investment: Firm-level evidence from Africa and Latin America. Strategic Management Journal, 37(9), 1865–1877.

    Google Scholar 

  • Bryant, C. E., & Javalgi, R. G. (2016). Global economic integration in developing countries: The role of corruption and human capital investment. Journal of Business Ethics, 136(3), 437–450.

    Google Scholar 

  • Calderón, R., Álvarez-Arce, J. L., & Mayoral, S. (2009). Corporation as a crucial ally against corruption. Journal of Business Ethics, 87, 319–332.

    Google Scholar 

  • Castro, A., & Ansari, S. (2017). Contextual “readiness” for institutional work. A study of the fight against corruption in Brazil. Journal of Management Inquiry. doi: 10.1177/1056492617696887.

    Google Scholar 

  • Chang, S. J., & Wu, B. (2014). Institutional barriers and industry dynamics. Strategic Management Journal, 35(8), 1103–1123.

    Google Scholar 

  • Chang, S. J., & Xu, D. (2008). Spillovers and competition among foreign and local firms in China. Strategic Management Journal, 29(5), 495–518.

    Google Scholar 

  • Chen, S., Sun, Z., Tang, S., & Wu, D. (2011). Government intervention and investment efficiency: Evidence from China. Journal of Corporate Finance, 17(2), 259–271.

    Google Scholar 

  • Collins, J. D., Uhlenbruck, K., & Rodriguez, P. (2009). Why firms engage in corruption: A top management perspective. Journal of Business Ethics, 87(1), 89–108.

    Google Scholar 

  • Cuervo-Cazurra, A. (2008). Better the devil you don’t know: Types of corruption and FDI in transition economies. Journal of International Management, 14(1), 12–27.

    Google Scholar 

  • De Castro, J. O., Khavul, S., & Bruton, G. D. (2014). Shades of grey: How do informal firms navigate between macro and meso institutional environments? Strategic Entrepreneurship Journal, 8(1), 75–94.

    Google Scholar 

  • de Jong, G., Tu, P. A., & 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.

    Google Scholar 

  • Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27(7), 637–657.

    Google Scholar 

  • Dreher, A., & Gassebner, M. (2013). Greasing the wheels? The impact of regulations and corruption on firm entry. Public Choice, 155(3–4), 413–432.

    Google Scholar 

  • Dyer, W. G., Jr., & Mortensen, S. P. (2005). Entrepreneurship and family business in a hostile environment: The case of Lithuania. Family Business Review, 18(3), 247–258.

    Google Scholar 

  • Elsbach, K. D. (2003). Organizational perception management. Research in Organizational Behavior, 25, 297–332.

    Google Scholar 

  • Escribano, A., Fosfuri, A., & Tribó, J. A. (2009). Managing external knowledge flows: The moderating role of absorptive capacity. Research Policy, 38(1), 96–105.

    Google Scholar 

  • Fisman, R., & Svensson, J. (2007). Are corruption and taxation really harmful to growth? Firm level evidence. Journal of Development Economics, 83(1), 63–75.

    Google Scholar 

  • García-Canal, E., & Guillén, M. F. (2008). Risk and the strategy of foreign location choice in regulated industries. Strategic Management Journal, 29(10), 1097–1115.

    Google Scholar 

  • Henisz, W. J., & Zelner, B. A. (2005). Legitimacy, interest group pressures, and change in emergent institutions: The case of foreign investors and host country governments. Academy of Management Review, 30(2), 361–382.

    Google Scholar 

  • Hiatt, S. R., & Sine, W. D. (2014). Clear and present danger: Planning and new venture survival amid political and civil violence. Strategic Management Journal, 35(5), 773–785.

    Google Scholar 

  • Holburn, G. L. F., & Zelner, B. A. (2010). Political capabilities, policy risk, and international investment strategy: Evidence from the global electric power generation industry. Strategic Management Journal, 31(12), 1290–1315.

    Google Scholar 

  • Huang, F., & Rice, J. (2012). Firm networking and bribery in China: Assessing some potential negative consequences of firm openness. Journal of Business Ethics, 107(4), 533–545.

    Google Scholar 

  • Hung, H. (2008). Normalized collective corruption in a transitional economy: Small treasuries in large Chinese enterprises. Journal of Business Ethics, 79(1–2), 69–83.

    Google Scholar 

  • Insead, L. C., & Chatain, O. (2008). Competitors’ resource-oriented strategies: Acting on competitors’ resources though interventions in factor markets and political markets. Academy of Management Review, 33(1), 97–121.

    Google Scholar 

  • Iriyama, A., Kishore, R., & Talukdar, D. (2016). Playing dirty or building capability? Corruption and HR training as competitive actions to threats from informal and foreign firm rivals. Strategic Management Journal, 37(10), 2152–2173.

    Google Scholar 

  • Jensen, N. M., Li, Q., & Rahman, A. (2010). Understanding corruption and firm responses in cross-national firm-level surveys. Journal of International Business Studies, 41(9), 1481–1504.

    Google Scholar 

  • Klingebiel, R., & Rammer, C. (2014). Resource allocation strategy for innovation portfolio management. Strategic Management Journal, 35(2), 246–268.

    Google Scholar 

  • Kozhikode, R. K., & Li, J. (2012). Political pluralism, public policies, and organizational choices: Banking branch expansion in India, 1948–2003. Academy of Management Journal, 55(2), 339–359.

    Google Scholar 

  • Lau, C. K. M., Demir, E., & Bilgin, M. H. (2013). Experience-based corporate corruption and stock market volatility: Evidence from emerging markets. Emerging Markets Review, 17, 1–13.

    Google Scholar 

  • Lau, C. M., Yiu, D. W., Yeung, P. K., & Lu, Y. (2008). Strategic orientation of high technology firms in a transitional economy. Journal of Business Research, 61(7), 765–777.

    Google Scholar 

  • Lee, S. H., & Weng, D. H. (2013). Does bribery in the home country promote or dampen firm exports? Strategic Management Journal, 34(12), 1472–1487.

    Google Scholar 

  • London, T., & Hart, S. L. (2004). Reinventing strategies for emerging markets: Beyond the transnational model. Journal of International Business Studies, 35(5), 350–370.

    Google Scholar 

  • Luo, Y. (2004). An organizational perspective of corruption. Management and Organization Review, 1(1), 119–154.

    Google Scholar 

  • Luo, Y. (2011). Strategic responses to perceived corruption in an emerging market: Lessons from MNEs investing in China. Business and Society, 50(2), 350–387.

    Google Scholar 

  • Marquis, C., & Raynard, M. (2015). Institutional strategies in emerging markets. The Academy of Management Annals, 9(1), 291–335.

    Google Scholar 

  • Martin, K. D., Cullen, J. B., Johnson, J. L., & Parboteeah, K. P. (2007). Deciding to bribe: A cross-level analysis of firm and home country influences on bribery activity. Academy of Management Journal, 50(6), 1401–1422.

    Google Scholar 

  • Mathias, B. D., Lux, S., Crook, T. R., Autry, C., & Zaretzki, R. (2015). Competing against the unknown: The impact of enabling and constraining institutions on the informal economy. Journal of Business Ethics, 127(2), 251–264.

    Google Scholar 

  • McCann, B. T., & Bahl, M. (2017). The influence of competition from informal firms on new product development. Strategic Management Journal, 38(7), 1518–1535.

    Google Scholar 

  • Mendoza, R. U., Lim, R. A., & Lopez, A. O. (2015). Grease or sand in the wheels of commerce? Firm level evidence on corruption and SMEs. Journal of International Development, 27(4), 415–439.

    Google Scholar 

  • Méon, P. G., & Weill, L. (2010). Is corruption an efficient grease? World Development, 38(3), 244–259.

    Google Scholar 

  • Montiel, I., Husted, B. W., & Christmann, P. (2012). Using private management standard certification to reduce information asymmetries in corrupt environments. Strategic Management Journal, 33(9), 1103–1113.

    Google Scholar 

  • Mudambi, R., Navarra, P., & Delios, A. (2013). Government regulation, corruption, and FDI. Asia Pacific Journal of Management, 30(2), 487–511.

    Google Scholar 

  • Nguyen, N. A., Doan, Q. H., Nguyen, N. M., & Tran-Nam, B. (2016). The impact of petty corruption on firm innovation in Vietnam. Crime, Law and Social Change, 65(4–5), 377–394.

    Google Scholar 

  • Ntayi, J. M., Ngoboka, P., & Kakooza, C. S. (2013). Moral schemas and corruption in Ugandan public procurement. Journal of Business Ethics, 112(3), 417–436.

    Google Scholar 

  • O’Toole, C. M., & Tarp, F. (2014). Corruption and the efficiency of capital investment in developing countries. Journal of International Development, 26(5), 567–597.

    Google Scholar 

  • Paunov, C. (2016). Corruption’s asymmetric impacts on firm innovation. Journal of Development Economics, 118, 216–231.

    Google Scholar 

  • Pelletier, K. L., & Bligh, M. C. (2008). The aftermath of organizational corruption: Employee attributions and emotional reactions. Journal of Business Ethics, 80(4), 823–844.

    Google Scholar 

  • Peng, M. W., & Luo, Y. (2000). Managerial ties and firm performance in a transition economy: The nature of a micro-macro link. Academy of Management Journal, 43(3), 486–501.

    Google Scholar 

  • Pfarrer, M. D., Decelles, K. A., Smith, K. G., & Taylor, M. S. (2008). After the fall: Reintegrating the corrupt organization. Academy of Management Review, 33(3), 730–749.

    Google Scholar 

  • Roper, S., & Love, J. H. (2002). Innovation and export performance: Evidence from the UK and German manufacturing plants. Research Policy, 31(7), 1087–1102.

    Google Scholar 

  • Schembera, S., & Scherer, A. G. (2017). Organizational strategies in the context of legitimacy loss: Radical versus gradual responses to disclosed corruption. Strategic Organization, 15(3), 301–337.

    Google Scholar 

  • Scott, W. R. (2013). Institutions and organizations: Ideas, interests, and identities. Los Angeles: Sage Publications.

    Google Scholar 

  • Shinkle, G. A., & Kriauciunas, A. P. (2010). Institutions, size and age in transition economies: Implications for export growth. Journal of International Business Studies, 41(2), 267–286.

    Google Scholar 

  • Shinkle, G. A., & McCann, B. T. (2014). New product deployment: The moderating influence of economic institutional context. Strategic Management Journal, 35(7), 1090–1101.

    Google Scholar 

  • Tsai, K. H., & Wang, J. C. (2007). Inward technology licensing and firm performance: A longitudinal study. R&D Management, 37(2), 151–160.

    Google Scholar 

  • Vial, V., & Hanoteau, J. (2010). Corruption, manufacturing plant growth, and the Asian paradox: Indonesian evidence. World Development, 38(5), 693–705.

    Google Scholar 

  • Waldemar, F. S. (2012). New products and corruption: Evidence from Indian firms. The Developing Economies, 50(3), 268–284.

    Google Scholar 

  • Webb, J. W., Bruton, G. D., Tihanyi, L., & Ireland, R. D. (2013). Research on entrepreneurship in the informal economy: Framing a research agenda. Journal of Business Venturing, 28(5), 598–614.

    Google Scholar 

  • Webb, J. W., Tihanyi, L., Ireland, R. D., & Sirmon, D. G. (2009). You say illegal, I say legitimate: Entrepreneurship in the informal economy. Academy of Management Review, 34(3), 492–510.

    Google Scholar 

  • Wright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. (2005). Strategy research in emerging economies: Challenging the conventional wisdom. Journal of Management Studies, 42(1), 1–33.

    Google Scholar 

  • Wu, J., & Zhao, H. (2015). The dual effects of state ownership on export activities of emerging market firms: An inducement–constraint perspective. Management International Review, 55(3), 421–451.

    Google Scholar 

  • Zhang, Y., & Li, H. (2010). Innovation search of new ventures in a technology cluster: The role of ties with service intermediaries. Strategic Management Journal, 31(1), 88–109.

    Google Scholar 

  • Zhou, K. Z., Gao, G. Y., & Zhao, H. (2017). State ownership and firm innovation in China: An integrated view of institutional and efficiency logics. Administrative Science Quarterly, 62(2), 375–404.

    Google Scholar 

  • Zhou, X., Han, Y., & Wang, R. (2013). An empirical investigation on firms’ proactive and passive motivation for bribery in China. Journal of Business Ethics, 118(3), 461–472.

    Google Scholar 

  • Zhou, J. Q., & Peng, M. W. (2012). Does bribery help or hurt firm growth around the world? Asia Pacific Journal of Management, 29(4), 907–921.

    Google Scholar 

Download references

Acknowledgements

This study was funded by the National Natural Science Foundation of China (Grant Number: 71472118; 71472063; 71772118). The authors also thank the anonymous referees for their valuable suggestions.

Author information

Authors and Affiliations

  1. School of Management, Shanghai University, Shanghai, 200444, China

    Xuemei Xie

  2. School of Business, East China University of Science and Technology, Shanghai, 200237, China

    Guoyou Qi

  3. Rady School of Management, University of California, San Diego, CA, 92093-0553, USA

    Kevin Xiaoguo Zhu

Authors
  1. Xuemei Xie
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Guoyou Qi
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Kevin Xiaoguo Zhu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Guoyou Qi.

Ethics declarations

Conflict of interest

All authors declare that they have no conflict of interest

Informed Consent

This article does not contain any studies with human participants or animals performed by any of the authors.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Xie, X., Qi, G. & Zhu, K.X. Corruption and New Product Innovation: Examining Firms’ Ethical Dilemmas in Transition Economies. J Bus Ethics 160, 107–125 (2019). https://doi.org/10.1007/s10551-018-3804-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-018-3804-7

Keywords

Search

Navigation