Corruption and New Product Innovation: Examining Firms’ Ethical Dilemmas in Transition Economies

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Abstract

Corruption as a non-market strategy for firms has gained increasing attention in the field of strategy management. However, the effect of corruption on innovation is unclear, especially in the context of transition economies. Using institutional theory, we examine the relationship between corruption and new product innovation and identify the contextual conditions of the relationship. Using the World Bank Enterprise Survey data from China, our empirical results show that corruption has a positive effect on firms’ new product innovation. Moreover, we find that policy instability and competitive threats from the informal sector positively moderate the relationship between corruption and new product innovation. Using post hoc analysis, we find that the potentially positive effect of corruption on new product innovation is the consequence of inherent institutional weaknesses in transition economies; as the level of institutional development increases, the effect of corruption on firms’ new product innovation will gradually decrease. Overall, our findings provide new insights into understanding corrupt behaviors in transition economies and present managerial implications for firms’ ethical dilemmas in a transition economy context. We argue that the key to overcoming these ethical dilemmas lies in promoting pro-market institutional reform to reduce the potential benefits of corruption.

Keywords

Corruption Policy instability Informal sector New product innovation 

Notes

Acknowledgements

This study was funded by the National Natural Science Foundation of China (Grant Number: 71472118; 71472063; 71772118). The authors also thank the anonymous referees for their valuable suggestions.

Compliance with Ethical Standards

Conflict of interest

All authors declare that they have no conflict of interest

Informed Consent

This article does not contain any studies with human participants or animals performed by any of the authors.

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© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of ManagementShanghai UniversityShanghaiChina
  2. 2.School of BusinessEast China University of Science and TechnologyShanghaiChina
  3. 3.Rady School of ManagementUniversity of CaliforniaSan DiegoUSA

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