Business strategies and corruption in small‐ and medium‐sized enterprises: The impact of business group affiliation, external auditing, and international standards certification

Changwony, F.K; Kyiu, A.K

Abstract

We examine the impact of three business strategies separately and in combination on the tendency for firms to engage in corruption. Using a sample of 56,827 firm-year observations for small- and medium-sized enterprises (SMEs) over the 2006–2018 period, we find that firms with business group affiliations are more likely to engage in corrupt practices in countries with low business freedom. However, those in countries with high business freedom are less likely to do so. We also find that firms that engage the services of external auditors and adopt international standards are less likely to be corrupt, especially in countries with weak financial reporting standards. Our results also show that corruption intensity reduces even more for firms that employ the three strategies, whether we consider institutional factors or not. This result holds when we use a three-way interaction term. We conclude that the three strategies are mutually reinforcing and that firm-level and country-level efforts complement each other in mitigating corruption.

Citation

Changwony, F., & Kyiu, A. (2024). Business strategies and corruption in small‐ and medium‐sized enterprises: The impact of business group affiliation, external auditing, and international standards certification. Business Strategy and the Environment, 33(1), 95-121. https://doi.org/10.1002/bse.3333

• Journal Article Type: Article
• Acceptance Date: Jul 3, 2022
• Online Publication Date: Jan 16, 2023
• Publication Date: 2024-01
• Deposit Date: Mar 14, 2023
• Publicly Available Date: Jul 19, 2023
• Journal: Business Strategy and the Environment
• Print ISSN: 0964-4733
• Electronic ISSN: 1099-0836
• Publisher: ERP Environment
• Peer Reviewed: Peer Reviewed
• Volume: 33
• Issue: 1
• Pages: 95-121
• DOI: https://doi.org/10.1002/bse.3333
• Public URL: https://durham-repository.worktribe.com/output/1178283