Bribes don't always work, says NRI academic
New research by an Indian-origin academic has shown that companies bribing their way to contracts underperform for up to three years before and after securing the work for which the bribe was paid.
The research, by Raghavendra Rau, the Sir Evelyn de Rothschild Professor of Finance at the Cambridge Judge Business School, is one of the first studies in which documented bribery incidents between 1971 and 2007 have been analysed.
It focusses on the initial date of award of the contract for which bribe was paid rather than the date on which the bribery was revealed, said a Cambridge university release.
Traditionally, bribery has been studied by analysis of perceptions or self-reported survey-based evidence. Rau concentrates on the date the contract was awarded for which a bribe was paid.
He says that if a bribe had been paid in 1995 and went undetected until 2005, it was possible to calculate the impact on the company of getting the contract at that time.
By comparing the amount of the bribe paid, it was possible to calculate negative or positive aspects against the company's gain from the contract, the statement added.
Rau said: "We found individual companies gained an average of USD 7 of benefit for every dollar they paid, but the benefit disappeared the higher they want.
"If you bribe a head of state, the amount you get from the contract is subsumed by the value of the bribe itself because the head of state extracts all the value of the bribe."
He added that the research showed that "inefficient" rather than "best performing" companies paid bribes.
"For the worst performing companies' shareholders, it's good as long as they don't try to buy up a head of state and concentrate on a lower tier official.
"From the point of view of society, it's terrible because the worst kind of companies are winning the contracts and that amounts to a distortion of resource allocation in an economy," Rau said.
Contrary to previous survey-based studies, a firm's performance, the rank of the politician bribed as well as characteristics of bribe-paying and bribe-taking countries, affect the magnitude of the bribe.