ABSTRACT Sustainability‐oriented business strategies rely on institutional environments that reward credible accountability rather than symbolic compliance. Yet, in many contexts, corruption may distort these incentives, weakening firms' commitment to substantive governance practices. This study examines how corruption affects firms' adoption of external auditing as a proxy for governance substance and sustainability‐oriented accountability. Using country–year data from the World Bank Enterprise Surveys covering 128 countries over 2006–2020, we construct multiple measures of corruption, including bribery incidence, bribery depth, tax‐related informal payments and administrative ‘gifts to get things done’. Employing pooled models with year fixed effects and correlated random effects (CRE/Mundlak) estimators suited for sparse panels, we find a robust negative relationship between corruption and audit adoption. Mechanism analyses show that this adverse effect is amplified in environments characterised by intense informal competition, consistent with the green unfairness channel. In contrast, corruption has a weaker and less consistent effect on website adoption, suggesting that it undermines substantive governance investments more than visible modernisation signals. These findings contribute to institutional and sustainability literature by demonstrating how corruption discourages firm‐level accountability investments that underpin credible sustainability transitions. The results highlight the importance of anti‐corruption enforcement, market formalisation and transparency reforms in strengthening governance substance and enabling sustainability‐oriented business conduct.
Qin et al. (Wed,) studied this question.