Multinationals and corruption: Business as usual?

Abstract

This paper disentangles the effects of corruption on entry mode decision by carrying out an empirical analysis with rich, firm-level data on the activities of Swedish MNCs around the globe in manufacturing sectors from 1987 to 1998. A number of propositions emerge from a simple theoretical framework. The panorama of the results from the empirical part supports most of these propositions: Entry mode decision of an MNC is a complex one and there are many asymmetries involved when it comes to the impact of corruption on this decision. First, greenfield investments are always discouraged by higher levels of corruption. This is more so for firms with high levels of mobile skills. Second, M&As are encouraged by moderate levels of corruption. For firms with high levels of non-mobile skills this effect is stronger. However, when corruption levels are beyond a certain threshold, M&As are deterred as well. Third, firms with a wider network of foreign affiliates are more immune to the effects of corruption, whereas small, single affiliate firms are severely affected. These results confirm the findings of the recent literature and add to it by testing a number of extensions of this view.