·Rearch Articles·
Eat, Drink and Sell: Evidence from China
*
Jiuli Huang, Yanling Wang**
Abstract: Operating in an environment with epidemic corruption, firms often engage in bribery to “get things done”. It is especially the ca in China, where domestic market is gmented by provincial borders arising from protections by local governments. This paper studies fi rms’ corruptive behavior of treating government offi cials lavishly to help them overcome local protections in their sales efforts. In so doing, we utilize a two-step procedure to correct firms’ lf-lection of sales entry. We find that corruption helps firms overcome local protection to enter other provincial markets, and once in the markets, corruption alleviates the negative effects of local protectionism on fi rms’ sales volume.
Keywords: Eat-Drink, Corruption, Market Entry, Local Protectionism
考研满分多少分JEL Classifi cation: D22 F1
1 Introduction
Firms’ engagement in corruption acts, with government officials and among themlves, perhaps has lent the largest social support for governments worldwide to enact anti-corruption regulations. Common acts of corruption,
* Acknowledgements: Jiuli Huang acknowledges the financial support from the National Social Science Fund of China (13BJL050) and the support by Program for New Century Excellent Talents in University (NCET-13-0298), and Yanling Wang acknowledges the support from a Carleton Development Grant.
** Jiuli Huang, Center for Transnational’s Study, and Department of International Business, School of Economics, NankaiUniversity.E-mail:******************.YanlingWang,correspondingauthor.NormanPatersonSchool of International Affairs, Carleton University, and School of Economics, Henan University. E-mail: Yanling_Wang@ carleton.ca.
白鹤观2Jiuli Huang, Yanling Wang
such as bribery and fraud, are illegal virtually everywhere (Noonan, 1984), and more countries have adopted the Organisation for Economic Co-operation and Development (OECD) guidelines against c春色校园
orruption by firms (Kaufmann and Wei, 1999). Despite the substantial efforts, corruption transactions are as prevalent as ever in most countries and even on the ri in others (Kaufmann and Kraay, 2008; Lambsdorff, 2006). Scandals and reports involving lf-dealing top management teams are common, so are reports of the bribery of bureaucrats and elected offi cials (Djankov et al., 2008). Once an unethical practice is en as “the way things are done”, it can readily become an unwritten rule of competition despite the costs incurred (Brass et al., 1998; Oliver, 1997), which is particularly true in China, given its political and cultural background (to be discusd later in detail). Rearch on the engagement of fi rms in illegal corruption transactions is growing (Kwok and Tades, 2006), but contemporary investigations have focud on country and broad firm-level influences on corruption behavior (Davis and Ruhe, 2004; Habib and Zurawicki, 2002; Uhlenbruck et al., 2006). This paper offers an interesting ca to study fi rms’ corruption to advance their sales into other provincial markets in China, and to examine how corruption by fi rms helps overcome provincial barriers to enter other markets and alleviate the negative effects on their sales of protection favoring local products.
Different explanations have been put forward to explain why fi rms choo to corrupt people in position. Among tho is the residual control theory of firm (Grossman and Hart, 1986; Hart and Moo
re, 1990), which suits relatively well in the Chine context. The residual control theory argues that actual behavior of a fi rm depends on who owns the residual rights to control the fi rm’s asts, that is, “the rights to determine the us of asts under circumstances that are not covered by contractual terms” (Foss and Foss, 1999, p. 4). Politicians or government officials can wield their residual rights by imposing rules and regulations on fi rms (Johnson et al., 1998). Although a fi rm’s exposure to public corruption varies depending on the pervasiveness of national corruption and the frequency with which a fi rm’s activities bring it into contact with government officials (Lee et al., 2010), as long as government officials posss residual rights, firms will resort to corruption to extract favors. This has become very clear in China.
China, despite being the fastest growing developing country in the world during the last three decades, has witnesd rious corruption problems by fi rms (and many other players), which have been frequently reported in the media. Just as the residual theory suggests, fi rms’ engagement in corruption in China reflects both their operating environment and their respon to the external pressure in order to achieve private purpos. Chine governments at all levels
Eat, Drink and Sell: Evidence from China3
春节游have the authority to allocate state resources and to impo rules and regulations on firms. But governments’ execution of rules and regulations are not always transparent, which could vary from ca to ca depending on many factors involved. That creates large room for fi rms to corrupt government offi cials for their private gains. Corruption can function, to a certain degree, as a mechanism for resource reallocation in China, though it creates unfair competition and fosters more corruptive behaviors by tho in power. More often than not, Chine government offi cials expect bribes and grafts in exchange for practicing favoritism towards the individuals. Firms choo to corrupt offi cials to achieve “protection” and “green lights” (the “grea money”); or to prevent further grabbing by government offi cials (the “protection money”).1 The latter type is mainly for maintain a good relationship with government offi cials so that fi rms might not be prone to government interventions due to the many irregularities in implementing regulations.
In China, regarding firms’ endeavor to advance sales in other provincial markets, they first have to overcome the hurdle arising from barriers across China’s provincial administrative borders thanks to local protection.2 The provincial barriers have helped creating more opportunities for corruption in. Unlike in many other countries3, intra-national entry barriers within China stem largely from local protectionism, that is, discrimination in favor of local fi rms by overt or covert local government polici
es or regulations. As reported in many articles, local governments in China have strong incentives to protect their fi rms at the expen of fi rms from other domestic regions (Bai et al., 2004; Bao et al., Forthcoming), and local protectionism takes on many forms. For example, local government agencies may try to increa the cost of fi rms from other domestic regions with stringent taxation inspections, unnecessary product standards or extra sanitation requirements. Local governments may even intervene directly
1 If corruption gets out of control, it will be a wasteful way of allocating resources, and creates distrust to the rich
and the powerful. China has witnesd both in recent years. Clearly understanding the grudging conquences of corruption, Chine President Xi Jinping began his tenure in 2012 by vowing to fi ght corruption with the slogan “Cracking down the ‘Flies’ and ‘Tigers’”, suggesting that corruption at every level is not to be tolerated.
2 In fact, intra-national trade costs exist in any country with a large territory, even for very open countries such as the缝纫机维修
United States. Studies have found that trade within the US appears to be substantially impeded by st厨师英语怎么写
ate borders (Wolf, 2000), and that the US intra-national border effect is even higher than its international border effect (Coughlin and Novy, 2013).
3 Nitsch and Wolf (2013) u the reunifi cation of Germany to study the effect of the fall of the Berlin Wall on intra-包拯是哪里人>红枣桂圆枸杞茶的功效
German trade fl ows, and fi nd a remarkable persistence in intra-German trade patterns, which indicates that political integration is not rapidly followed by economic integration. Domestic infrastructure is an important factor facing many developing countries to facilitate the fl ows of goods within a country. Martincus and Blyde (2013), u the 2010 Chile earthquake as a natural experiment to study the disruption of domestic infrastructure to trade fl ows and fi nd that the incread costs had a negative impact on fi rms’ exports, which is primarily driven by a reduction in the number of shipments.
