Drawing from fraud triangle theory, the purpose of this paper is to examine whether the use of internal control systems and codes of conduct, as a specific element of internal control, helps firms to reduce law violations and bribery payments to public officials.
The study is based on survey data of Vietnamese firms, conducted between September and December 2018. The authors run logistic and ordinary least squares regressions to test the hypotheses.
The study showed that the use of internal control systems has a negative and significant relationship with law violation but not with bribes paid to public officials. By contrast, the use of codes of conduct appears to reduce bribe payments but not law violations.
Cross-sectional data do not allow us to confirm causal relationships. The self-reported measures of the use of codes of conduct and internal control systems may suffer from social desirability biases and should be further validated with different samples of firms. Finally, the relatively modest number of firms that participated in the survey raises a concern of sample representativeness.
For businesses, the application of codes of conduct and internal control systems enhances the reliability and certainty of the firm's operations as well as its integrity, contributing to the firm's long-term development. For policymakers, encouraging businesses to use internal control systems and codes of conduct would contribute meaningfully to the anti-corruption effort.
Businesses in emerging economies face a dilemma of how to participate in an anti-corruption agenda while staying profitable. This study shows that the use of internal control systems and codes of conduct would serve both purposes, contributing to businesses' sustainable development.
