The Bribery Paradox in Transition Economies and the Enactment of ‘New Normal’ Business Environments

• DOI: http://doi.org/10.1111/joms.12551
• Author: Kimberly A. Eddleston,Alain Verbeke,Elitsa R. Banalieva
• Published date: 01 May 2020
• Date: 01 May 2020

© 2019 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies

and John Wiley & Sons Ltd.

The Bribery Paradox in Transition Economies and the

Enactment of ‘New Normal’ Business Environments

Kimberly A. Eddlestona,b, Elitsa R. Banalievab

and Alain Verbekec,d,e

aCornell University Smith Family Business Initiative; b Northeastern University; c University of Calgary;

dUniversity of Reading; e Vrije Universiteit Brussels

ABSTRACT We develop a novel, sense-making perspective on corruption in transition economies.

Prior research has focused on understanding why some entrepreneurs are more likely to pay

bribes than others. It typically assumes that paying bribes will lead to an intended – albeit unfair

– competitive advantage. We challenge this assumption and uncover a bribery paradox: drawing

upon sense-making logic, we argue that beyond gaining an immediate benefit from bribing,

entrepreneurs who frequently pay bribes may in the longer run be enacting a ‘new normal’ busi-

ness environment perceived as high in obstacles, especially in transition countries. As sense mak-

ing is grounded in identity construction and one’s social context, we argue that owners of family

firms will be especially vulnerable to the dangers of perceiving greater obstacles over time and

enacting an obstacle-ridden ‘new normal’ business environment. We find empirical support for

our framework on a sample of 310 privately held small and medium-sized enterprises (SMEs)

from 22 transition economies.

Keywords: bribery paradox, degree of business obstacles, family- vs. nonfamily-owned SMEs,

frequency of bribery, new normal business environments, sense making, transition economies

INTRODUCTION

Prior research has tended to assume that entrepreneurs who bribe public officials garner im-

mediate benefits, such as favourable treatment, access to limited government goods, and an

unfair competitive advantage (Martin et al., 2007; Tonoyan et al., 2010; Ufere et al., 2012).

Journal of Man agement Studi es 57:3 May 2020

doi:10. 1111/jo ms.1 2551

Address for reprints: Elitsa R. Banalieva, Associate Professor of International Business & Strategy, Northeastern

University, D'Amore-McKim School of Business, 360 Huntington Avenue, 315C Hayden Hall, Boston, MA

02115, USA (e.banalieva@northeastern.edu).

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-

NoDerivs License, which permits use and distribution in any medium, provided the original work is prop-

erly cited, the use is non-commercial and no modifications or adaptations are made.

598 K. A. Eddleston et al.

© 2019 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies

and John Wiley & Sons Ltd.

But whether entrepreneurs who pay bribes actually sense a genuine benefit accruing over

time, is not known. In transition economies where corruption is constantly changing in

volume, form, and acceptance (Christensen et al., 2019; Olimpieva, 2010), bribes can

bring immediate privileges to an entrepreneur, but over time they can also infect and spread

within a community (Li et al., 2015), leading to a ‘new normal’ business environment that

is afflicted with corruption. The possible occurrence of this bribery paradox (immediate

benefits to the briber, but a more corrupt environment in the longer run) leads to our

research question: do entrepreneurs from transition economies who frequently bribe see

those bribes as ‘grease money’ that lessens their business obstacles? Or rather, do they see

frequent bribes as ‘sand in the wheels of progress’ that increases their business obstacles?

While the preponderance of research has sought to predict who pays bribes and why

(e.g., Ashforth et al., 2008; Martin et al., 2007; Svensson, 2003; Ufere et al., 2012), we

investigate instead how the frequent (or infrequent) payment of bribes shapes entre-

preneurs’ perception of their business environment. The frequency of bribes refers to

the rate of occurrence with which firms extend bribes to government officials to obtain

services and deal with bureaucracy during the regular course of doing business. Several

theories have been utilized to predict the payment of bribes: for example, transaction

cost economics (Kaufmann, 1997; Rodriguez et al., 2005), anomie theory (Martin et

al., 2007), theories on culture (Chen et al., 2008), and institutional theory (Ashforth and

Anand, 2003; Misangyi et al., 2008; Tonoyan et al., 2010). In contrast, we sought to

explore how entrepreneurs are active authors of their own reality, with the payment

of bribes shaping how they perceive their business environment. Here, we extend the

sense-making perspective (Weick, 1995) to bribery in transition economies by arguing

that as entrepreneurs more frequently pay bribes, they create a ‘new normal’ business

environment that is perceived as increasingly harsh. However, for entrepreneurs who

infrequently bribe, their ‘new normal’ is likely to be perceived as more supportive of

business. Thus, as transition economies evolve, the ‘new normal’ is likely to be perceived

differently by entrepreneurs depending on their frequency of briber y.

Further, because scholars have called for research to consider how the social context

and embedded social identities influence sensemaking (Lockett et al., 2014; Maitlis and

Christianson, 2014), we propose that family firms and nonfamily firms will view the

subsequent effects of their bribes differently. Family firms are unique because their fam-

ily identity is inextricably tied to the family firm and their business is embedded in the

social context of the family (Dyer and Whetten, 2006; Zellweger et al., 2010). In making

sense of their business environment in light of their bribery, we hypothesize that owners

of family firms will view their ‘new normal’ through the lens of the family, leading to

greater perceived business obstacles as the frequency of bribes increases.

We test our framework on 310 privately owned SMEs from 22 transition economies who

participated in the 2002 and 2005 Business Environment and Enterprise Performance

Survey (BEEPS). Transition economies refer to countries in Eastern Europe that were

members of the former USSR as well as countries in Central and Eastern Europe that

were under Soviet influence. Despite transitioning from centrally planned to more mar-

ket-based economies, bribery remains a significant problem in many transition econo-

mies due to their government’s discretion over the use of valuable resources, information,

and law enforcement (Kim et al., 2018). Entrepreneurs, defined as owner-managers of