Using private management standard certification to reduce information asymmetries in corrupt environments

TLDR

The study examines how institutional corruption affects firms’ decisions to acquire private management standard certifications as signals of desirable conduct and discusses implications for transaction cost economics and institutional theory. Empirical evidence from 433 Mexican automotive plants shows that policy‑specific corruption raises the signaling value and adoption of ISO 14001 certification, while widespread general corruption diminishes its credibility and reduces firms’ likelihood of obtaining certification. © 2012 John Wiley & Sons, Ltd.

Abstract

Abstract This paper investigates how corruption in the institutional environment influences firms' decisions to obtain third‐party certification to private management standards as signals of desirable conduct. We argue that policy‐specific corruption erodes trust in government efforts to regulate firms' conduct, thus increasing the signaling value of private certifications and the likelihood of certification. However, widespread corruption in the general environment can extend distrust to private certification systems, which reduces the credibility and signaling value of private certifications, thus decreasing the likelihood that firms obtain certification. Our empirical results based on ISO 14001 environmental management system certification among 433 automotive plants in Mexico confirm these relationships. We discuss the implications of our findings for transaction cost economics, institutional theory, research, and practice. Copyright © 2012 John Wiley & Sons, Ltd.