Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Importing Corporate Corruption


Steve Sailer points us toward a paper that studies the effect of culture on corporate governance.

The results are terribly un-P.C. As it turns out, the cultural background of corporate owners is significant when it comes to tax evasion—and probably a host of other corporate misdeeds.

The paper's title: "Importing Corruption Culture from Overseas: Evidence from Corporate Tax Evasion in the United States."

The abstract:

This paper studies how cultural norms and enforcement policies influence illicit corporate activities. Using confidential IRS audit data, we show that corporations with owners from countries with higher corruption norms engage in higher amounts of tax evasion in the U.S. This effect is strong for small corporations and decreases as the size of the corporation increases. In the mid-2000s, the United States implemented several enforcement measures which significantly increased tax compliance. However, we find that these enforcement efforts were less effective in reducing tax evasion by corporations whose owners are from countries with higher corruption norms. This suggests that cultural norms can be a challenge to legal enforcement.

This underlines a long-running thread here at NetNet: corporate governance matters much less than basic morality. You can set up all the rules you want but if the people running the company are not of high moral character, you'll get cheating, self-dealing and dishonesty. Rules matter less than ethics.

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