Corruption is the misuse of power or wrongdoing on the part of an authority through means that are immoral or illegitimate with the ethical standards that need to be followed. It is often associated with bribery and can result due to patronage. When a business engages in corrupt practices, it creates an unfavorable environment that encourages anti-competitive practices and unfair advantage.

Corruption is one of the biggest hurdles to the development of the economy as it challenges democratic principles and undermines the rule of law. It can cause enormous economic loss to consumers as cartels create an unfair market by fixing prices of products and services. They eliminate competition by cornering a large share of the market using corrupt practices.

Bribery, embezzlement, extortion and graft are some of the common names that are used to describe corrupt practices. These practices can restrict trade, interrupt investment, reduce economic growth and distort the chances of success for small and medium sized enterprises.

Effects of corruption

Inefficiency – When resources are used in an improper manner or tampered with the efficiency of business tends to suffer. The resources that are available to business to run their business effectively may be insufficient, and this can affect the level of operations. Inadequate resource allocation can also affect the quality of the product and service that are available in the market.

When corrupt practices are exposed, customers may lose faith and trust in the product or service. The management may have to spend a considerable amount of time to reassure the customers, and this may be an exercise in vain. Penalties and legal fees may take most of the crucial resources that need to be used, and this can influence the overall efficiency of the business.

Lost resources – Apart from inefficient use of resources, corrupt practices can have a big economic impact on businesses. When important resources that are needed to run the operations are lost or diverted for other purposes, they can have a significant impact on the core business.

Weak development – Investors and customers are skeptical about doing business with organizations that indulge in corrupt practices. Businesses may find it much harder to find the investment needed to grow. So if a business has a corrupt history, then potential investors may shy away from investing in it leading to weak development. Investors may also pull back the money that they had invested, and this can have an impact on the future of the company.

Increase in crime – Corruption in business trickles down to support other types of organized crime. This can within no time infiltrate across the various level of business and may beget continued criminal activity if it is not detected at the earliest. The effects of such corrupt practices may eventually affect the society in which businesses operate. It can have a big negative impact on economic growth.

Corruption can have far reaching consequences for business entities as it can hurt their image and affect their profitability. This can also result in loss of customers, and it may take long for an organization to rebuild its reputation and win trust.