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Which firms benefit from bribes, and how much? Evidence from corruption cases worldwide. Stephen Cheung (Hong Kong Baptist University) Raghavendra Rau (University of Cambridge) Aris Stouraitis (Hong Kong Baptist University). What do we do?.
Stephen Cheung (Hong Kong Baptist University)
Raghavendra Rau (University of Cambridge)
Aris Stouraitis (Hong Kong Baptist University)
D’Souza and Kaufmann (2010)
BAE Systems will pay a $79m (£49m) fine to the US government to settle a civil prosecution linked to an earlier criminal investigation in which BAE admitted to "defrauding the US" over the sale of fighter aircraft abroad…
At the same time, BAE also settled a separate bribery investigation by the Serious Fraud Office, agreeing to pay £30m for failing to keep proper accounting records over the sale of a radar system to Tanzania in return for the prosecution being dropped…
In a court filing, the DoJ claimed BAE transferred more than £10m and $9m to Swiss bank accounts controlled by an agent with a high probability that a payment would go to a Saudi Arabian official in a position of influence.
The Daily Telegraph, May 18, 2011 Wednesday
We find that firms that win contracts by paying bribes under-perform their peers for up to three years before and after winning the contract for which the bribe was paid.
The major characteristic that distinguishes these firms from their peers is sales growth.
Firms that bribe are fixated on sales growth, not on maximizing shareholder value.
Firm performance, the rank of the politicians bribed, as well as bribe-paying and bribe-taking country characteristics affect the magnitude of the bribes and the benefits that firms derive from them.
Shareholders in these firms benefit but the higher the rank of politicians that they bribe, the lower the benefit that they get. Ultimately, if you bribe a head of state for example, the shareholders get no benefit from winning the contract – the size of the bribe more than offsets the value of the contract to the firm.
We show that since the worst firms win contracts, society is worse off from these payments, not merely because poorly performing firms may also deliver poor results, but because these firms are less efficient in converting inputs into results.
Measures that promote shareholder monitoring of managers (e.g., director liability, shareholder lawsuits) may help reduce bribery. Institutions that promote transparency (e.g. democracy, freedom of the press, education, disclosure of politician sources of income), institutions that promote enforcement (e.g., police reliability), and measures that eliminate regulatory rigidities may also help reduce bribery.