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The dimensions of corruption and its impact on FDI decision making: the case of Guatemala

Published online by Cambridge University Press:  20 January 2017

Jose Godinez  and
Mauricio Garita
Jose Godinez*
Affiliation:
Merrimack College – Girard School of Business, O'Reilly Hall 425 315 Turnpike St. O'Reilly Hall 425, North Andover, Massachusetts 01845, USA
Mauricio Garita
Affiliation:
Universidad del Valle Guatemala, 18 Av. 11–95 zona 15. Vista Hermosa III Guatemala City, Guatemala
*
Corresponding author: Jose Godinez, e-mail: godinezj@merrimack.edu
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Abstract

This study researches how the arbitrariness and pervasiveness of corruption affect the decision-making process and subsequent operations of firms investing in highly corrupt host locations. The results of the analysis demonstrate that firms headquartered in countries where corruption is high have an advantage when operating in a foreign country with a similar institutional environment. The reason for this advantage is that these firms possess knowledge of how to cope with the arbitrary and pervasive dimensions of corruption. Firms from countries with lower corruption levels than the host country, however, are more affected by corruption in a highly corrupt host country. Finally, though this study finds evidence that all firms operating in a highly corrupt country might participate in corrupt deals, those headquartered in highly corrupt countries are more likely to be willing to do so. This claim is based on 12 in-depth interviews with managers with FDI allocation responsibilities of firms operating in a highly corrupt host country. The results show that firms from less corrupt countries face stronger pressures from their headquarters to not engage in corrupt deals, whereas firms from more corrupt countries do not encounter such pressures.

Type
Research Article
Information
Business and Politics , Volume 18 , Issue 2 , August 2016 , pp. 123 - 141
Copyright
Copyright © 2016 Walter de Gruyter GmbH, Berlin/Boston 

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