From the Top Down: Does Corruption Affect Performance?

TL;DR

This paper investigates how corruption and unethical managerial practices impact firm performance using a large international dataset, highlighting the strategic implications for corporate governance.

Contribution

It is the first study to analyze the effects of illicit managerial activities on firm performance with extensive cross-country data.

Findings

Corruption negatively affects firm performance.

Unethical practices influence corporate governance strategies.

Managerial misconduct impacts organizational outcomes.

Abstract

Corruption, fraud, and unethical activities have emerged as significant obstacles to global economic, political, and social progress. Although many empirical studies have focused on country-level corruption metrics, this study is the first to utilize a substantial international dataset to assess the effects of illicit and unethical managerial practices on firm performance. Employing cross-sectional data, this research examines the influence of corruption on corporate outcomes. Our definition of corruption evaluates the degree to which managers engage in mismanagement, misconduct, or corrupt activities. The repercussions for corporate governance, especially concerning the process of appointing managers, are both crucial and strategic.