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Corruption

Corruption occurs when a firm violates moral codes of conduct to attain some undue advantage. Corruption is a subpart of the relatively broader concept of corporate misconduct. While misconduct includes financial restatement fraud, contract violation, bribery, kickbacks, environmental violations, and product-specific accidents, not all of these constitute corruption.

For corporate corruption to occur, three fundamental conditions must be met: (1) there must exist a party that has power, (2) the power of that party must be relevant to revenue-generating or expense-reducing activities, and (3) the legal and penal systems must be inadequate to comprehensively detect and punish wrongful use of the power. The power can be held by the corrupt firm itself, whereby the firm abuses its power to realize unfair benefits (e.g., financial misrepresentation of ...

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