The Shareholder–Manager Relationship and Its Impact on the Likelihood of Firm Bribery Dendi Ramdani • Arjen van Witteloostuijn Received: 29 April 2011 / Accepted: 25 October 2011 / Published online: 6 December 2011 Ó Springer Science+Business Media B.V. 2011 Abstract We examine the impact on firm bribery of two corporate governance devices heavily studied in corporate governance research—i.e., separation of ownership and control, and equity share of the largest shareholder. In addition, we investigate the impact of the principal–own- er’s gender on firm bribery. From agency theory, we pre- dict that firms with the owner also acting as a manager (owner–manager) are more likely to engage in bribery compared to their counterparts with separation of owner- ship and control. We argue that an increase of the equity share of the largest shareholder can either increase or decrease firm bribery likelihood depending on the net cost- benefit effect of such bribery actions. In addition, we pre- dict that bribery is more likely to occur when the principal– owner is male rather than female. Using a rich dataset of the World Bank Enterprise Surveys of 2002–2005, we find that the equity share of the largest shareholder is negatively and male principal–owner is positively associated with the likelihood of firm bribery. Furthermore, we reveal that owner–manager is more likely to bribe when the principal– owner is male rather than female. We also observe that the effect of owner–manager is smaller as the equity share of the largest shareholder increases. Keywords Separation of ownership and control  Corporate governance  Agency theory  Gender and firm bribery Introduction Conflict of interest between shareholder and manager is the central focus of attention in the corporate governance research domain. According to agency theory, separation of ownership and control produces such conflicts, triggering agency issues that can decrease firm performance (Jensen and Meckling 1976; Fama and Jensen 1983). There are two reasons as to why separation of ownership and control cre- ates agency problems. The first reason is that the owner as a principal and the manager as an agent may well pursue dif- ferent goals. On the one hand, the aim of the owner is to maximize the value of the firm by attaining outstanding firm performance. On the other hand, the aim of the manager might be to maximize her or his private benefits, which often goes against the objective of the owner. The second reason is asymmetric information between the owner and the man- ager, and costly monitoring through which the owner seeks to verify what the manager has been doing. As a result, the value of the firm is below the optimum that could be achieved if the owner would act as the manager. Prior empirical study in corporate governance research has confirmed that separation of ownership and control decrea- ses firm performance, as does a smaller percentage of equity held by management (e.g., Mehran 1995; Agrawal D. Ramdani (&)  A. van Witteloostuijn (&) Antwerp Centre of Evolutionary Demography (ACED), Faculty of Applied Economics, University of Antwerp, Prinsstraat 13, 2000 Antwerp, Belgium e-mail: dendi.ramdani@ua.ac.be A. van Witteloostuijn e-mail: arjen.vanwitteloostuijn@ua.ac.be A. van Witteloostuijn Department of Organization and Strategy, School of Economics and Management, Tilburg University, Warandelaan 2, P.O. Box 90 153, 5000 LE Tilburg, The Netherlands A. van Witteloostuijn Department of Institutional Economics, Utrecht School of Economics, Utrecht University, Janskerkhof 12, 3512 BL Utrecht, The Netherlands 123 J Bus Ethics (2012) 108:495–507 DOI 10.1007/s10551-011-1105-5