Corporate political activity and bribery in Africa: Do internet penetration and foreign ownership matter?

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Abstract

There is significant research on the outcomes of corporate political activity (hereafter CPA). However, despite a few prior studies acknowledging the negative externalities of political activity, little attention has been paid to CPA’s dark side. In this paper, we draw on institutional and corporate governance insights to examine the relationship between CPA and bribery, which is arguably the greatest institutional failure in developing countries. Using pooled data from over 25,000 firms in 41 African countries, we find that lobbying and firm-level bribery are positively related. This relationship is weakened by in-country internet penetration and foreign ownership of firms. Taken together, the results suggest that business-government relations in weak institutional environments help to perpetuate corruption. They also suggest that internet penetration and foreign ownership help to illuminate the dark side of CPA. Leveraging this understanding, we make important contributions to the literature and highlight pertinent practical implications.

Introduction

Emerging and developing countries are characterised by weak institutions (Khanna et al., 2005, Peng and Luo, 2000), uncertain and volatile environments, and high transaction costs (Nell et al., 2015, Puck et al., 2013). These conditions, which are not conducive for business, motivate firms to engage in corporate political activity (hereafter CPA) to create or shape their operating environments in ways that favour their survival, performance, and competitive advantage (Acquaah, 2007, Hillman et al., 1999, Liedong and Frynas, 2018). CPA refers to “corporate attempts to shape government policy in ways favourable to the firm” (Hillman, Keim, and Schuler, 2004: 838) or “any deliberate firm action intended to influence government policy or process” (Getz, 1997: 32-3). In this study, we define CPA as firms’ efforts to favourably manage their policy environments whereby senior managers engage with government officials to change regulations or undermine regulatory enforcement.

CPA has received considerable scholarly attention, with the majority of studies focusing on its antecedents and outcomes (Barron, 2011, Hillman, 2003, Hillman and Wan, 2005, Lawton et al., 2013). The literature largely suggests that CPA positively impacts firm performance (Hillman et al., 2004, Lux et al., 2011, Mathur and Singh, 2011, McWilliams et al., 2002, Rajwani and Liedong, 2015) through its ability to draw institutional support, enhance opportunity recognition, and avail critical resources for innovation and investment (Guo et al., 2016, Guo et al., 2014, Xin and Pearce, 1996). As much as the prevailing evidence paints a positive image of CPA, few studies have acknowledged its dark side (i.e., its negative effects and externalities), especially in developing and emerging countries (e.g., Johnson and Mitton, 2003, Lawton et al., 2013, Liedong et al., 2020, Liedong and Rajwani, 2018, Sun et al., 2016).

The existing corpus on the dark side of CPA mainly attends to how CPA causes corporate governance problems (Bliss et al., 2011, Chaney et al., 2011, Effiezal et al., 2011, Sun et al., 2016) and allows firms to capture regulatory processes or control policymakers (Hadani et al., 2016, Hong and Kim, 2017). Despite its merits, the existing trajectory raises questions about the mechanics through which these negative effects are realized. In developing countries, the dark side of CPA is propped up by weak institutions that fail to impose checks and balances on public governance, corporate governance, and business-government relations (Liedong, 2020, Liedong et al., 2020). Specifically, bribery and corruption may underpin CPA in these countries (Campos and Giovannoni, 2007, Harstad and Svensson, 2011, Idemudia et al., 2019, Lawton et al., 2013, Liedong, 2020), and may provide the conduit for politically connected firms to enjoy lenient regulatory enforcement, no or low penalties for corporate governance infractions, and unfettered power over policymaking processes (Dal Bo, 2006, Dal Bo et al., 2006, Fan et al., 2008, Fredriksson et al., 2007).

A few studies have investigated lobbying and bribery, but they have not specifically studied the link between both phenomena. For instance, Campos and Giovanni (2007) and Yim, Lu and Choi (2017) examined the differential impact of bribery and lobbying on political influence and firm growth respectively, with both studies reporting that lobbying and bribery are substitutes or alternatives. In contrast, Damania, Fredrikson, and Mani (2004) argue that in countries where bribery is used to evade regulations, lobbying is also used to resist anti-corruption reforms, indicating co-existence and complementarity. What is common across these studies is that while they draw conclusions of complementarity or substitution between lobbying and CPA, they do not examine the direct relationship between lobbying and bribery, which obscures a deeper understanding of the dark (or bright) side of CPA. Additionally, existing studies have largely overlooked the potential boundary conditions and contingencies of the relationship. Effects and relationships are likely to vary for different actors and under different circumstances. Hence, the lack of moderation analysis has left an important gap in scholars’ understanding of the conditions that attenuate and accentuate the connection between engaging in CPA and paying bribes. Particularly, the factors that incentivize or affect the agency or behaviour of CPA actors, bribe-givers and bribe-takers have not received sufficient attention and will need to be considered for a better understanding of the contingent nature of the CPA-bribery relationship. More details on research gap and theoretical positioning are discussed in the next section.

To advance extant literature, this study attempts to answer the overarching research question: what is the relationship between CPA and bribery? We integrate institutional theory (North, 1990) and agency theory (Jensen and Meckling, 1976), particularly drawing from the literature on the inextricable relationship between institutions, agency, and corporate governance (Amaeshi et al., 2016, Nakpodia et al., 2018, Young et al., 2008), to answer the above question within the context of Africa. We argue that due to weak regulatory institutions and the pervasiveness of corruption (Adeyeye, 2017, Doig et al., 2007, Williams-Elegbe, 2018) and the lack of formal structures or frameworks for CPA in some developing countries (Liedong and Frynas, 2018), firms that engage in CPA are more likely to bribe public officials.

While we argue that weak regulatory institutions enable the dark side of CPA or specifically facilitate the high tendency to bribe when engaging in CPA, we also acknowledge that firms can make strategic decisions about whether to comply or defy institutional pressures (Clemens and Douglas, 2005; Oliver, 1991). Hence, engaging in (un)ethical CPA could be a choice determined by the agency of the firm. For instance, even in highly corrupt environments, some firms resist bribery (e.g., see Doh et al., 2003). Also, this choice could be discretionary or non-discretionary depending on external oversight. We therefore advance that the relationship between CPA and bribery is contingent on how prevailing cognitive and normative conditions in a country as well as corporate governance dynamics in a firm affect the behaviour of CPA actors, bribe-givers, and bribe-takers. In this respect, we examine the moderating impact of agency and internal governance through foreign ownership and the moderating impact of cognitive and normative institutional development through internet penetration.

We set our study in Africa for an important reason. Corruption is highly prevalent in the region and is a significant barrier to its socio-economic development (Idemudia et al., 2019, Liedong, 2017). Common among political elites, the public, and the private sectors, corruption has evolved into an institution of its own in African societies (van den Bersselaar and Decker, 2011, Teorell, 2007), and is manifested through everyday bribery and graft. Data from Transparency International confirms how African countries rank poorly on the Corruption Perception Index (CPI). Hence, the region, which is arguably the most corrupt in the world, provides an appropriate context to investigate whether CPA contributes to the existence and perpetuation of corruption.

This paper makes significant contributions to the IB and CPA literatures. First, it highlights a positive association between CPA and bribery, suggesting that lobbying is an antecedent of corruption. Importantly, it adds to the debate about the mutual exclusiveness of bribery and lobbying (Campos and Giovannoni, 2007, Harstad and Svensson, 2011, Yim et al., 2017), and shows that they are complements, not substitutes. This finding is an extension of the literature on the dark side of CPA (Liedong et al., 2020, Sun et al., 2016) and marks a significant contradiction to the widely held notion that CPA reduces institutional constraints (Meznar and Nigh, 1995, De Villa et al., 2018). While we acknowledge the ability of CPA to ethically shape institutional environments (e.g., Liedong, 2017), insights from our findings indicate that the bright side of CPA is dependent on the availability of formal institutional structures to guide and monitor business-government relations. In developing countries where CPA is unregulated and the prevailing institutions do not support transparent and ethical lobbying (Liedong, 2020), bribery and corruption become the prominent mechanisms in political markets.

Second, this paper shows that internet penetration and foreign ownership weaken the positive association between CPA and bribery, hence shedding invaluable light on how digital technology and ownership structure can brighten up the dark side of CPA. This is an important contribution to the literature, considering that only a few studies have explored the contingent nature of CPA’s dark side (Sun et al., 2016). We show that despite the overwhelming pressure for unethical CPA in weak institutional environments, technology enhances information flows and facilitates stakeholder monitoring of firms and political elites, which reduces the incidence of bribery in CPA. Essentially, we show the boundary conditions of the CPA-bribery relationship, and particularly highlight how institutional conditions and governance dynamics affect CPA’s dark side.

Section snippets

The dark side of CPA

The power of governments to shape institutional environments is unquestionable. They make rules and formulate policies, which invariably impact firms’ operations and performance (North, 1990). Consequently, firms are highly dependent on the actions and inactions of politicians. This is particularly true in developing countries where inefficient institutions fail to check government behaviour, allowing politicians to arbitrarily apply regulations and direct the allocation of scarce productive

Data

To test our hypotheses, we used secondary, pooled, and firm-level data from World Bank Enterprise Surveys (WBES).1 These surveys provide in-depth firm-level information covering a wide array of issues, including technology and infrastructural development, ownership structures, crime, corruption, access to finance, legal obstacles, and other investment climate conditions for about 164,000 firms in 144 countries. The World Bank has conducted

Results

Table 3 reports the summary statistics for our main variables. In Panel A, the mean value of BRIBE is 2.03, indicating that 2.03 % of sales are paid as informal payments or gifts. The average of CPA is 8.3 % with a large standard deviation. DFOREIGN has a mean value of 0.190, indicating that 19 % of the sample firms are foreign-owned. The sample firms have a mean value of 54 employees, suggesting they are relatively medium-size firms. On average, managers have over 14 years’ experience. Panel B

Discussion and conclusion

In this paper, we examine the dark side of CPA by investigating the association between political activity and bribery in African countries. Our findings reveal a significant and positive relationship between firms’ CPA and the bribes they pay. This relationship is weakened by country-level internet penetration and the presence of foreign investors in a firm. Leveraging these findings, we make significant contributions to the IB literature. First, our paper suggests that lobbying is an

CRediT authorship contribution statement

Tahiru Azaaviele Liedong: Conceptualization, Methodology, Validation, Investigation, Writing - Original Draft, Writing - Review & Editing, Project administration. Daniel Aghanya: Writing – review & editing, Writing – original draft, Methodology, Formal analysis, Data curation, Conceptualization. Alfredo Jimenez: Writing – review & editing, Validation, Supervision, Project administration, Investigation, Conceptualization. Tazeeb Rajwani: Writing – review & editing, Validation, Supervision,

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgments

The authors are grateful to Guest Editor Prof. Jeoung Yul Lee and the anonymous reviewers for their guidance and constructive feedback. Alfredo Jiménez acknowledges that this publication is part of the I + D + i project PID2019-104408 GB-I00, funded by MCIN/ AEI/10.13039/501100011033/.

Tahiru Azaaviele Liedong is an Associate Professor of Strategy and International Business at University of Bath School of Management. His research focuses on nonmarket strategy, corporate governance and firm performance, particularly in emerging countries. His works have been published in top journals including Journal of World Business, British Journal of Management, Management International Review, Journal of International Management, Journal of Business Ethics, and Long Range Planning. He

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  • Cited by (6)

    Tahiru Azaaviele Liedong is an Associate Professor of Strategy and International Business at University of Bath School of Management. His research focuses on nonmarket strategy, corporate governance and firm performance, particularly in emerging countries. His works have been published in top journals including Journal of World Business, British Journal of Management, Management International Review, Journal of International Management, Journal of Business Ethics, and Long Range Planning. He sits on the editorial boards of Multinational Business Review and Journal of International Management

    Daniel Aghanya is a Lecturer in Finance and Associate Director of MSc Finance programme in the School of Economics, Finance and Accounting at Coventry University. His research focuses on financial regulation, corporate political activity and corporate finance and governance. His works have been published in Journal of Business Ethics, Journal of Banking and Finance, International Review of Financial Analysis, and International Journal of Banking, Accounting and Finance

    Alfredo Jimenez is Professor of International Business at Kedge Business School in Bordeaux (France). His research interests are focused on the process and determinants of success in the internationalization strategy of firms. He is also working on a research line devoted to virtual and multi-cultural team management and dynamics. His research has appeared in the Journal of International Business Studies, Harvard Business Review, Journal of World Business, Global Strategy Journal, Business and Society, International Business Review, Journal of Business Research, Technological Forecasting and Social Change, and Journal of International Management. He has also been a visiting scholar in different institutions in Norway, Germany, Australia, Singapore, Italy, Ecuador, and Mexico. He was chosen for the 40 under 40 list of Poets&Quants (2021).

    Tazeeb Rajwani is a Professor of Strategic Management and International Business at Surrey Business School, University of Surrey, UK. He has written several academic papers, books, chapters, reports and white papers on topics of strategic management, political risk, nonmarket strategy, corporate political activity, corporate social responsibility and business model innovation. His work has appeared in Organization Science, Journal of International Business Studies, Journal of World Business, Journal of Management Studies, Academy of Management Perspectives, Global Strategy Journal, British Journal of Management, International Business Review, Long Range Planning and Journal of Business Ethics among others. He is an Associate Editor at Multinational Business Review and Journal of International Management.

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