The impact of corruption and public governance quality on family firm business strategy

Abstract

AbstractCorruption is a plague with serious economic and social consequences and has a greater impact than people perceive. The impacts on business are severe but often underestimated. The aim of this paper is to analyze the influence of public governance environment on the strategical opportunistic use of related party transactions in family firms. Considering corruption as a good indicator of conditions that boost unethical behavior, the study investigates whether high standard of public governance quality at a regional level, as well as low corruption, helps to reduce specific types of opportunistic transactions. Based on a regression analysis on European‐listed family firms in Italy, France, and Germany, we find that high public governance quality at the regional level reduces companies' opportunistic transactions. The study addresses a gap in the literature, first, because it empirically shows a link between the quality of the context and some unethical business strategies, confirming that a negative context leaves room for opportunistic behaviors and that high standards in the public governance quality discourage firms' opportunistic behaviors through specific transactions and, second, because it focuses on family firms suggesting that a strong family power that controls strategy and decision‐making process, if operate in a bad public quality context, may be involved in opportunistic behaviors.