Corporate recidivism in emerging economies

• DOI: http://doi.org/10.1111/beer.12132
• Published date: 01 January 2017
• Author: Qinqin Zheng,Rosa Chun
• Date: 01 January 2017

Corporate recidivism in

emerging economies

Qinqin Zheng

1

and Rosa Chun

2

1. School of Management, Fudan University,Shanghai, P.R.China

2. UCD Michael Smurfit Graduate Business School, Blackrock, Co. Dublin, Ireland

Prior research on corporate misconduct pays extensive attention to single misconduct behaviors. However,

little research has addressed recidivism – the repeated behaviors of corporate misconduct. Based on

institutional theory and using the context of emerging economies where recidivism plays a considerable role,

we propose the path dependency of corporate recidivism and suggest that three influential factors exist:

internal preconditioning, inter-organizational imitation, and the prevailing external evaluation. Our event

history analysis of 1,036 listed companies in China over the period 2001–2008 statistically confirms our

hypotheses. We conclude the paper by outlining the implications for both theory and practice.

Introduction

Corporate misconduct, defined as both the unethical

and illegal organizational behaviors that encompass

a broad scope of violations, is attracting increasing

attention (e.g. Szwajkowski 1986; MacLean 2008;

Palmer 2012). However, little research has addressed

corporate recidivism – the repeated behaviors of cor-

porate misconduct. Recidivism is a criminological

term used in the fields of law and psychology, which

refers to repeated patterns of criminal or antisocial

behaviors (Harris et al. 1991). Corporate recidivism

can thus be defined as corporate behavior patterns of

repeated misconduct. Any misconduct that is

repeated by companies following a conviction for

previous violations may be considered to be recidi-

vism. Corporate recidivism consists of continuous

unethical or illegal behaviors in a time series, repre-

senting the persistence or durability of corporate

misconduct. It is widely acknowledged that corpo-

rate misconduct not only harms corporate reputa-

tion (Luo 2005; Chun 2006), but also has a negative

impact on peer organizations and society as a whole

(Jonsson et al. 2009). Nevertheless, corporate recidi-

vism is more culpable than an isolated incidence of

misconduct and might have greater negative impacts

on society. An old Chinese adage says that first-time

offenses may constitute ‘out of character’ acts, while

second-time offenses are marks of ‘bad character’

(Lee 2008). Baucus & Baucus (1997) point out that

the sanctions could be greater for firms with a history

of violations than those for first-time violators,

emphasizing the seriousness of repeated misconduct.

In emerging economies, the unprecedented scope

and pace of economic development has also drawn

increasing attention to the constraints resulting from

the relatively under-developed business ethics and

CSR. Recent decades have witnessed an acceleration

of corporate recidivism in certain emerging econo-

mies. According to the China Securities Regulatory

Commission (CSRC), 266 out of 1,036 listed compa-

nies were penalized for having committed miscon-

duct during the period 2001–2008, 93 of which were

repeat violators (CSRC 2009). Companies from

China are also ‘regarded by their peers as among the

most corrupt when doing business abroad’ (Trans-

parency International 2009: xxix). Chinese society,

overall, is uneasy about this upward trend in organi-

zational misconduct, which has led to questions

about the reasons for such a rapid decline in corpo-

rate morality (Luo 2008) and the factors that might

account for the phenomenon of recidivism.

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doi: 10.1111/beer.12132

63

Business Ethics: A European Review

Volume 26 Number 1 January 2017

The existing literature on corporate misconduct

tends to focus on a single behavior in the areas of

corruption, financial reporting, fraud, and antitrust

violations (e.g. O’Fallon & Butterfield 2005; Ferrell

et al. 2008; Palmer 2012). Prior research provides a

thorough examination of single misconduct, whereas

recidivism has received far less attention. Based on

the existing research on corporate misconduct, we

aim to explore corporate recidivism using the context

of emerging economies, where recidivism plays a

considerable role in both the business world and

society at large.

In this study, we investigate why companies tend

to engage in recidivism and what causes corporate

recidivism in emerging economies. By addressing

these research questions, we adopt institutional

theory and use the path dependence perspective to

examine the mechanism that drives recidivism. Path

dependence highlights the notion that ‘history mat-

ters’ (Vergne & Durand 2010), and suggests that

‘current and future states, actions, or decisions

depend on the path of previous states, actions, or

decisions’ (Page 2006: 88). This perspective acknowl-

edges that actions are constrained and enabled by

the prevailing conditions and decisions that were

taken at some point in the past; these actions in turn

provide the preconditions for future actions.

Prior research has addressed the major influence

of institutional pressures at multiple levels on CSR

and sustainable development in emerging economies

(Jamali 2010b; Jamali & Neville 2011; Abreu et al.

2015). Enlightened by the study of Jamali & Neville

(2011), we develop a theoretical framework in which

corporate recidivism depends on three factors at the

micro, meso, and macro levels: internal precondi-

tioning, inter-organizational imitation, and the pre-

vailing external evaluation.

The contribution of this research is threefold.

First, in this study, we take an initial step toward

exploring the notion of corporate recidivism. It is the

repeated behaviors of corporate misconduct that

prevails during institutional transitions in many

emerging economies. Second, based on institutional

theory, we develop a framework to examine the

mechanism of corporate recidivism and investigate

three influential factors of recidivism at the micro,

meso, and macro levels. The study contributes

toward our understanding of the impact of

institutional forces on the persistence of corporate

misconduct in emerging economies. Finally, our

study also provides managerial implications for

managers. In order to refrain from committing recid-

ivism, it is vital to pay attention to the path depend-

ence of corporate recidivism. Companies should

carefully analyze both the internal conditions and

external institutional environment. Meanwhile, it is

also helpful to take proactive measures to reduce the

risk of initial misconduct and the following of uneth-

ical patterns.

In the next section, we present the theoretical

background and hypotheses. The third section

explains the research methods and data collection.

We then report the results and discussion in the

fourth and fifth sections, followed by the conclusions

and implications at the end.

Theory and hypotheses development

Path dependence of corporate recidivism

Path dependence means ‘current and future states,

actions, or decisions depend on the path of previous

states, actions, or decisions’ (Page 2006: 88). The

path dependence of recidivism addresses an action or

choice that is to be sustained through a series of

forces (Page 2006). To investigate the path depend-

ence of recidivism, we adopt institutional theory as

our theoretical grounding for recidivism.

As implied by institutional theory, companies’

decisions on CSR or ethical implementation are

highly supported and constrained by institutional

forces (Jamali & Mirshak 2007; Jamali & Neville

2011; Abreu et al. 2015). Due to imperfect informa-

tion or limited knowledge, there is high uncertainty

about the future business environment. Under

such uncertainty, early choices may determine or

restrict subsequent choices (Page 2006). Therefore,

decision making is closely based on previous

behaviors as a tradition or institutional norms,

even though some may lead to outcomes that are

regrettable and costly to change (Margolis & Lie-

bowitz 1995). Hence, the selection of a common

approach may, at times, leave companies stuck

with a bad decision or negative situation (David

2007). Such an institutional pattern then encour-

ages further recidivism.

Business Ethics: A European Review

Volume 26 Number 1 January 2017

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