Confianza empresarial en mercados emergentes: el efecto moderador sobre la relacion entre instituciones y corrupcion en Mexico y Peru.
| Autor | Sanchez, Carol M. |
| Cargo | Research article |
Firm-level trust in emerging markets: the moderating effect on the institutional strength--corruption relationship in Mexico and Peru
Confianca empresarial nos mercados emergentes: o efeito moderador sobre a relacao entre instituicoes e a corrupcao no Mexico e o Peru
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Introduction
Firms operating in developed and emerging markets face the reality of corruption (Misangyi, Weaver, & Elms, 2008; Ionescu, 2013). Corruption occurs in all countries, but it presents special challenges to firms in emerging market countries (Transparency International, 2016; Bohn, 2013). Complicating the issue is corruption's influence that weakens already weak public institutions (Morris, 2009). Despite efforts in many emerging market countries to reform governments and strengthen institutions, corruption remains high in most of them (Transparency International, 2016). For example, in several Latin American countries, reforms have strengthened many public institutions, but rankings and scores on the Corruption Perception Index have not improved and many have worsened (Transparency International, 2016).
Corruption presents challenges to firms operating in emerging market countries, most of which prefer to engage in fair competition rather than corruption (Ciravegna, Lopez & Kundu, 2016). Firms in emerging markets generally prefer to avoid engaging in corruption, knowing that if they act corruptly, they damage their brand, alienate customers, and lose the support of their local communities (Schaefer & Schaefer, 2008). Emerging market firms instead want to achieve competitive advantages by building resources and capabilities, such as competitive pricing, innovation, distribution expertise, and by creating loyal, trusting, and trustworthy staff (Brenes, Haar, & Requena, 2009; Haar & Price, 2008). We argue that this last resource, the level of trust in the firm held by its staff, is a valuable capability. Furthermore, in highly corrupt countries, firm-level trust by employees engages them in ways that counter the external pressure placed on firms by public level corruption.
We ask the question, "How does firm-level trust by employees help emerging market firms mitigate the challenge of public level corruption?" The idea may seem counterintuitive: corruption is a dishonest and immoral behavior, while trust evokes honesty and a high level of morality. We argue that as firms that operate in corrupt environments build resources and capabilities to compete amid the uncertainty that corruption brings, firm-level trust is a very important resource. When employees trust the firm's priorities, and see that achieving those priorities leads to individual and team goals, the firm is better aligned to succeed (Brenes, Mena, & Molina, 2008).
This research on firm-level trust deepens understanding about the institutional strength--corruption relationship in emerging markets. We hypothesize that firm-level trust is a key variable that moderates the relationship between institutional strength and perceived corruption, such that when people have a high level of trust in the companies they work for, they will find corruption to be less strongly associated with weak public institutions. Conversely, when people have low trust in the companies they work for, corruption will be more strongly associated with weak institutions. While past studies have examined the effect of public sector trust, or generalized trust, on corruption (Li & Wu, 2010; Uslaner, 2013), which is generally negative, our study is unique because it examines how firm-level trust, or particularized trust (Uslaner, 2004), may influence people's perceptions of their public institutions and corruption.
This underexplored area of study makes three contributions to the corruption literature. First, our conceptual model expands existing research on corruption, suggesting that firm-level trust moderates the long held and oft-replicated relationship between weak public institutions and perceived corruption. We surveyed employees of firms in Mexico and Peru, measuring perceptions of corruption, trust, and institutional strength. Using confirmatory factor analysis and linear regression, we test these main effects, and we broaden our scope to test how employee's firm level trust moderates that relationship.
Second, we draw from the resource-based view of the firm (Barney, Ketchen, & Wright, 2011; Liu, 2012) to posit that firm-level trust is a resource and capability that increases employees' positive engagement in the firm's agenda, particularly in uncertain, corrupt institutional environments. Our contribution lies in empirically demonstrating that employees' trust in the firm, a valuable resource, moderates the weak institution--perceived corruption relationship.
Third, to our knowledge, no studies have examined the firm-level trust--corruption relationship, although some have explored the relationship between people's trust in their public institutions and perceptions of corruption. Our study does this, by examining this particularized level of trust that individuals in emerging market countries have in the firms they work for and its influence on their perceptions of corruption. By adding this important social variable, firm-level trust, to the study of perceived corruption, we begin to fill the gap that some scholars have recently called for (Bjornskov, 2011; Husted, 2002; Pena Lopez & Santos, 2014). Together with work focusing on corruption in emerging economies, this study provides local and multinational corporation managers with new knowledge on how firm-level trust might help firms perform effectively and successfully in situations of high perceived corruption.
This paper is structured as follows: section 2 provides the theoretical framework and hypotheses; section 3 explains the methods used to analyze empirically the weak institution--perceived corruption relationship and the moderating effects of firm-level trust; section 4 discusses the results; and finally, section 5 offers conclusions, recommendations for practice and research, and limitations.
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Theoretical framework
2.1. Corruption
"Corruption is the abuse of public power for private gain" (Lambsdorff, 2007, p.1). It occurs when people with discretionary power over public resources intentionally misdirect those resources or pervert organizational routines to their benefit (Jain, 2001; Lange, 2008). Corruption is that exercised by people in governmental institutions, because they have the power to arrest, imprison, charge, collect taxes from, and levy official power against, citizens and private firms in a way that non-governmental actors do not.
Corruption occurs to some degree in every country, per the corruption perception indices tracked by Transparency International (2016) and the World Bank (2016). Predictably, corruption generally has a negative effect. Corruption may lower national productivity (Lambsdorff, 2003); discourage investment by foreign and domestic firms (Habib & Zurawicki, 2002; Rose-Ackerman, 2002; Zhao, Kim, & Du, 2003); reduce confidence in public institutions (Berrios, 2010; Mocan, 2008); limit the development of small and medium-sized enterprises, weaken systems of public financial management, and undermine investments in health and education (Rose-Ackerman, 2002). Emerging market countries moving toward a free-market economy (Kvint, 2009) are particularly vulnerable to corruption, because their public institutions are often weaker (O'Higgins, 2006) and more corrupt (Arvate, Curi, Rocha, & Miessi Sanches, 2010; Mocan, 2008; Morris, 2009; Park, 2003; Venard, 2009; Morris & Klesner, 2010). Corruption feeds a vicious circle of negative outcomes where increased corruption produces less confidence in institutions, which in turn reduces private investment, slows economic growth, increases government outlays that favor the rich and well-connected, then leads to poor public infrastructure, and limits the ability of people and business to build sustainable incomes (O'Higgins, 2006).
2.2. Institutions and corruption
One theory of corruption suggests that individual attributes, such as a lack of integrity, moral identity, self-control, empathy, or psychopathology (Ashforth, Gioia, Robinson, & Trevino, 2008; Klitgaard, 1988) drive corrupt behavior. Corruption, then, is controlled by weeding out people with low moral character and discouraging them from acting on that character.
However, we argue in this paper that corruption is also institutional. Weak public institutions create a fertile environment for corruption (Morris, 2009; Schaefer & Schaefer, 2008), and in emerging market economies, forces larger than individual greed can drive corruption. Weak institutions result in a lack of transparency, lack of oversight, and uneven enforcement of policies, and these too are linked to higher incidences of corruption (Blake & Morris, 2009; Venard, 2009). Much of this research affirms the positive relationship between corruption and these weak institutions: namely, economic climate (Ahlin & Pang, 2008; Altunbas & Thornton, 2012; Fisman & Gatti, 2002; Rose-Ackermann, 2002), legal system (Rodriguez & Ehrichs, 2007), physical infrastructure (Huff & Kelley, 2005), and public safety (Lambsdorff, 2007; Price, 2008).
2.3. Firm-level trust
Trust is the "mutual confidence that no party to an exchange will exploit another's vulnerabilities" (Sabel, 1993, p.1133). Trust mitigates risk between one person and another: suggesting that I am vulnerable, you know that I am vulnerable, but I trust that you will not act upon that vulnerability. Put another way, trust is "the willingness of a party to be vulnerable to the actions of another ... based on the expectation that the other will [act]. irrespective of the ability to monitor or control [them]" (Mayer, Davis, & Schoorman, 1995, p.712).
"Trust helps people believe that other people are still part of their moral community" (Fukuyama, 1995, p. 153), making it easier to deal with...
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