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Strategic and transactional costs of corruption: perspectives from Vietnamese firms

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An Erratum to this article was published on 07 May 2016

Abstract

Focusing on Vietnam, this article explores what costs and benefits a firm may get when it engages in corrupt activities. The research employs three theoretical perspectives, namely institutional, rent-seeking and resource-based theories, to shed light on different types of costs and benefits of corruption at the firm level, using a combination of case studies and quantitative methods. The analysis addresses different types of costs and benefits of corruption for firms. The quantitative analysis (supplemented by qualitative interviews) draws on samples of Vietnamese firms from the Provincial Competitiveness Index (PCI) and the General Statistics Office’s firm surveys in 2009, 2010 and 2011. Results show that firms engage in corrupt activities primarily to follow the ‘rules of the game’. Commonly accepted benefits of corruption such as transactional benefits (i.e., better administrative services) or access to business opportunities hold true only for certain firms. On the other hand, corruption has harmful effects on a firm’s strategic capability by eroding the integrity culture, demotivating innovation and risking the firm’s reputation. These harmful effects are normally hidden and not well-recognized by firms.

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Notes

  1. The distinction here is between state-owned enterprises and private companies without Government involvement.

  2. For limitations of our dataset, see the Discussion section below.

  3. When we used another proxy for prevalence of informal payment in neighbourhood – average IP per firm in each district - we got the same results. That is, firms in districts which had higher average informal payments would pay more.

  4. The quantitative approach was complemented by in-depth fieldwork with companies scattered around Vietnam. We conducted interviews with four firms operating in the pharmaceutical, banking and construction sectors. Respectively, we call them: 1. Hipon Pharma Co (26 staff, approximately VND 4 billion in monthly revenue, and is foreign-owned. It mainly operated in the Northern provinces, and its key clients are big hospitals in urban centers and provinces); 2. HCM Pharma Co (20 staff, approximately VND 5 billion in monthly revenue, is a Vietnamese Joint-Stock. 40 % of its revenue comes from dealing with military hospitals); 3. Diaphuong Construction Co (66 employees, around VND 4 billion in monthly revenue; Vietnamese Joint-stock company. It mainly operates in residential and industrial construction projects in Red River Delta Provinces); and 4. Hanoi Bank (monthly revenue equals VND 3 trillion in loans; Vietnamese state-owned company; it mainly caters to individuals and organizations in the west side of Hanoi).

  5. This indicator totals all inspections, including tax, professional, and other inspections.

  6. For the technical inefficiency effect model, the Gamma test showed that the evidence for technical inefficiency existence (u it ) in large firms was clearer and accounting for a bigger proportion in the error term (v it - u it ). The estimated results for both small and large firms were consistent with the pooled estimations above. However, stronger impacts were found in the large firm group estimation in comparison with the small group.

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Acknowledgments

The authors thank Lien Nguyen, Edmund Malesky, participants of the Symposium, peer reviewers, and the guest editors of this issue for valuable comments on an earlier draft. Financial support from DFID is acknowledged.

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Authors and Affiliations

  1. National Economics University, Hanoi, Vietnam

    Thang V. Nguyen, Bao D. Ho, Canh Q. Le & Hung V. Nguyen

  2. IPAG Business School, Paris, France

    Thang V. Nguyen

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  1. Thang V. Nguyen
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  2. Bao D. Ho
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  3. Canh Q. Le
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  4. Hung V. Nguyen
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Correspondence to Thang V. Nguyen.

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Nguyen, T.V., Ho, B.D., Le, C.Q. et al. Strategic and transactional costs of corruption: perspectives from Vietnamese firms. Crime Law Soc Change 65, 351–374 (2016). https://doi.org/10.1007/s10611-016-9609-7

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