Not paying bribes can be bad for business

Paying a lot of money in bribes isn't good for companies' bottom line, but not paying any bribes is worse.

That’s according to a recent European Bank for Reconstruction and Development study that examined the experiences of almost 88,000 companies in 141 countries.

The cost of making large “informal payments” can hurt companies; high-paying businesses record weaker sales growth and productivity, whereas firms that pay smaller and fewer bribes do better.

In corrupt countries, however, companies that don’t pay bribes do worst of all because they get shut out of growth opportunities. Indeed, non-bribers even grow more slowly than businesses that pay bribes, accounting for up to 10 per cent of sales.

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Commenting on the study, investment blogger and Liberum strategist Joachim Klement notes it is thus best for a company in a corrupt country to pay bribes, but only as little as possible. If you refuse, your employees could lose their jobs.

“In the world we live in, we sometimes have to accept that companies act unethically in order to help people make a living and improve their lives”, says Klement. “It’s a moral dilemma ingrained in ESG [environmental, social and governance] investing that I have no answer for.”