With the majority of prior research focusing on the macro-level consequences of corruption, little has been analyzed about the effect of corruption on organizational innovativeness. Our study’s main research questions are as follows: First, does corruption influence an organizational ability to develop and introduce innovations? If so, what are the mechanisms which underlie the relationship between corruption and organizational innovativeness? Second, do different types of corruption have different effects on innovation? For example, do the spread of corruption as well as its predictability have an effect on organizational innovativeness? Third, what is the extent to which international differences in organizational innovativeness can be attributed to differences in the spread and predictability of corruption?

We utilize two theoretical contributions from corruption research - corruption as “grease-thewheels” mechanism for the economy (e.g. Leff, 1964; Leys, 1965; Huntington, 1968; Lui, 1985; Lien, 1986) and corruption as “sand-the-wheels” mechanism for the economy (e.g. Kurer, 1993; Shleifer & Vishny, 1993; Rose-Ackerman, 1997; Tanzi, 1998; Kaufman & Wei, 1999) for studying effects of corruption on organizational innovation.