Bribes for Sales: Evidence from the Second Set of Books

We study a proprietary dataset detailing the terms of over 1,000 sales transactions to 218 firms by a mechanics importer in an Asian country. Kickbacks are commons: 85 firms demand cash kickbacks in order to make a purchase. We find government firms to be the most corrupt, requiring kickbacks 47% of the time. However, private domestic firms are not free of corruption, with 32% requiring kickbacks. Perhaps most surprisingly, foreign firms, which offer higher salaries and have more educated employees, are more corrupt than domestic private firms: 40% of them take kickback. Japanese firms stand out as particularly corrupt. From the selling firm's perspective, transactions with higher kickbacks also have higher prices and higher markups. These findings suggest specific implications for corporate governance in emerging markets, where corruption is often widespread.