A dynamic simulation approach to frame drivers and implications of corruption practices on firm performance

Abstract

Corruption is a multifaceted socio-economic phenomenon widely spread - although with different intensity - all around the world. Many studies on corruption have been conducted at a country-level, but relatively little effort has been placed in evaluating its implications, in terms of both financial and competitive performance, at a firm-level. Therefore, this paper aims at exploring the causal relationships underlying the effect of corruption on firm performance in order to show the different scenarios that may emerge from the combination between external (i.e., contextual conditions) and internal (i.e., organizational characteristics) forces that drive corruption. To this end, we adopt a Dynamic Performance Management approach, that is, a combination between traditional Performance Management schemes and System Dynamics methodology, which allows analysts to frame complex physical and social systems by identifying and modelling those variables and related cause-and-effect relationships that mainly affect firm performance. As a result, the emerging quantitative model identifies different scenarios that highlight how a firm may react - in terms of performance simulation - to corruption practices.