Corruption in the arms- and defense industry : a comparative study of the largest American and European arms dealers

Abstract

This thesis compares American and European arms-and defense companies and their level of exposure to corruption risk. Through an empirical study, we analyze the companies’ exposure to corruption risk based on their countries of operations, and the initiatives they have implemented in order to mitigate said risk. The objective of the research is to investigate whether there is a difference between the level of exposure between American and European companies. In order to investigate this matter, two indexes are created: The Corruption Risk Index and the Transparency Index. The Corruption Risk Index measures the companies’ relative exposure to corruption risk based on their countries of operation, while the Transparency Index considers the companies’ transparency regarding anti-corruption programs and organizational aspects. The findings in the Corruption Risk Index imply that there is no significant difference between the American and the European companies regarding their exposure to corruption risk. Still, the scores allocated to each group were quite low, indicating a high exposure to corruption risk. Furthermore, the Transparency Index revealed that the American companies disclosed more information overall compared to the European companies. High levels of transparency may indicate more ethical behavior and less secrecy. The best explanatory factor for the difference is found to be a company’s attitude towards business ethics. As the consequences of corruption in the arms- and defense industry is comprehensive, the thesis also stresses the need for a harmonized legal framework within this area, as well as the need for public awareness regarding this matter.