This study aims at analyzing the influence which ethical behavior has on the corporate governance of firms performance in Ghana. The existing of ethical issues in business organizations and the general code of conduct which these companies are supposed to follow has brought about the need for researchers to assess their implications to the management of these firms. The findings in this study are essential in acknowledging the impact of ethical behavior on the management of the organization. This study has given us an in-depth understanding of the effects of ethical attributes such as ethical leadership and corporate governance to the overall financial development and performance of an firms in Ghana
Firms’ ethical issues are basically the approaches or ways which the stakeholders of the firms use in managing the collective action from the majority point of view and avoiding the damaging actions by ensuring proper control measures are put in place to control the powers, authorities and responsibilities of the management. The ethical behavior of firms regards their relationship with the customers, the environment in which they operate and the employees. Establishing the influence which this ethical behavior has on the corporate governance of the firms is essential not only for academicians but also for the policy makers in the corporate level to understand its impact. The corporate governance principles are significant in the management of the organizations.
Currently, the global business environment is facing an increasing influence of ethical behaviors on the principles of corporate governance. The recent global scandals in various multinational firms are linked to the increased calls for the strengthening of the corporate governance practices. The frauds in these organizations have been immensely linked to the failure by the political governing authorities to implement without favor the principles of corporate governance.
According to Agyemang, Aboagye, & Ahali (
According to the study conducted by Schwartz (
Ethical issues in profit making organizations have been in the center of academic scholarly research for the past years. The continuous power struggle, and court cases involving the multinational firms across the world and especially in Ghana, necessitated this research to establish the influence which ethical behavior has on the corporate governance strategy. The positive ethical elements require the firms to practice transparency in their financial reporting. Corporate governance requires the companies to stick with the best governing principles which will ensure that the operations of the organization are at par. Various scholarly studies have mainly dwelt their research studies on the relationship which exists between the ethical behavior of the company and the employee motivation, performance of the firm and profitability. Other studies have dwelt on the influence of proper corporate governance in the in the profitability of the firm. Few studies have been documented on the influence of ethical behavior to the corporate governance of an organization. Thus, this study aims at assessing the influence of ethical behavior on corporate governance in Ghana.
The general research objective of this study is to assess the influence of ethical behavior on corporate governance in Ghana. Ethical behavior of an organization affects the motivation of the employees and the financial performance of the company. However, the specific objectives include determining the extent to which the ethical behavior is a significant factor in corporate governance, assessing the determinants of ethical behavior in an organization and determining the benefits of ethical behavior in the performance of the company. The need to examine the influence of ethical behavior to the corporate governance in Ghana is essential topic that establishes the fundamental principles which has to be followed by corporate organizations in fulfilling their mandate. Establishing the link between ethical behavior and corporate governance is essential in helping the corporate policymakers to bring up the needed recommendations for the effectiveness and efficiency of the company. The findings in this study are essential in acknowledging the impact of ethical behavior on the management of the organization. It will also help in establishing the link which exists between the two variables.
In any given organization, ethics plays an integral role in ensuring good governance and also has a potential of affecting the trust which the public has to an organization in terms of its governance Perry et al (
Various studies are investigating the positive impact of ethical leadership and the impact it has on the performance of the employees. This is because, studies show that, the increased trust of employees to the management of the company has the potential of improving their job satisfaction, which can lead to improved performance of the company in terms of productivity Hassan (
Determinants of Ethical Behavior
According to Bello (
The encouragement from the leadership on moral, ethics and corporate governance should be example based. According to Fisher & Lovell (
Influence of ethics to organizational performance
Oladele (
According to Selvarajan & Sardessai (
Ethical Behavior and Corporate Governance
The primary goal and objective of any organization are to increase the value of the shareholder's input. The achievements of these goals and objectives must be done within the set, acceptable and environmentally friendly principles. According to McKay, Nitsch, & Peters (
Factors Affecting Ethical Behavior
Corporate governance works by interfering with the agency theory notion and ensures that the management acts according to the interests of the shareholders Solomon (
The variation and causative effects of different variables related to a study are well analyzed and understood using appropriate research methodology that depicts effective statistical techniques. In this study, effective methods were needed to show the effects of ethical behavior, ethical leadership, corporate governance to the corresponding financial performance and growth of the company. This study involved research on a sample of individuals from 200 different companies indicating their ethical traits, leadership traits and the general performance. Other ethical factors such as corruption and racial discrimination were considered and were needed to be compared with the companies’ financial performance. The data was collected by means of both primary and secondary sources. The primary data was directly collected from respondents from the two hundred different companies while the secondary data was important for knowing the background of the study as stipulated in the literature review. The secondary sources such as books, scientific published papers and journals also depicted the results, data and findings made from previous studies in reference to the ethical behaviors and its effects to the development and improved financial performance.
The set of hypothesis indicates that the relationship between the variables should be tested using different statistical techniques. The descriptive statistical analysis is very vital in showing the general characteristics of variables in the dataset. Simpler association analysis between variables is described using scatterplots.
However, the most relevant measures important for showing the nature of relationship between the factors attributing to improved financial performance of the companies are the correlation and regression analysis. The correlation analysis is the measure of the strength of relationship or association between different variables. The relationship between variables is referred to as either strongly positive or strongly negative. This depends on the value of the correlation coefficient; when the coefficient is positive and close to 1, the relationship is referred to as strongly positive associations while the association when the correlation coefficient is negative and far from 1, it is referred to as strongly negative. The significance of the relationships can be confirmed using the regression analysis. Regression analysis entails linear relationship between one or multiple variables. The regression analysis is very applicable in creating econometric models corresponding to different business structures. Regression econometric models are created using different predictor variables in the study in reference to the response variable under consideration. Each regression model has a corresponding histogram and a normal probability plot.
Model Specification & Variables.
The multivariate regression model involving many variables is explained in this part. The econometric model can be described using the following equation:
Financial Performance = β0 + β1 GEBpq+ β2ELpq + β3 CGpq + β4 CIOpq + β5 RDOit + εpq
Where:
GEB = Good ethical behaviors
EL = Ethical Leadership.
CG = Corporate Governance.
CIO = Corruption in your Organization.
RDO = Racial Discrimination in your Organization.
Ε = is error term
β0 = Constant
p
q = represents the years
Variables
The above variables stipulated on the econometric model will be considered in the analysis. The response variable also referred to as the dependent variable is the financial performance. The predictor variables or the independent variables include; good ethical behaviors, ethical leadership, corporate governance, corruption in the organization and racial discrimination. The dataset contains more variables such as gender, age of the respondents, education level and good payment facilitation modes in different organizations. The variation between the variables can be observed by pairing both response and predictor variables and observations are made indicating whether the variables influence each other positively or negatively. The variables in the model are considered because in the previous studies, they have been evidently used to explain business financial growth and development over specified periods. In cases of further regression analysis, the control variables or the mediation variables used to explain relationship between variables in reference to different mediation effects include age and gender, in comparison to financial performance and the good ethical attributes.
Descriptive Statistics of Variables
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Observations | Minimum | Maximum | Mean | Std. Deviation | Skew-ness | Kurtosis | |||
Statistic | Statistic | Statistic | Statistic | Statistic | Statistic | Std. Error | Statistic | Std. Error | |
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19 | 1 | 3 | 2.05 | .848 | -.107 | .524 | -1.623 | 1.014 |
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20 | 1 | 5 | 2.20 | 1.240 | .685 | .512 | -.447 | .992 |
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20 | 1 | 5 | 2.20 | 1.196 | .803 | .512 | -.063 | .992 |
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20 | 2 | 5 | 3.95 | 1.050 | -.498 | .512 | -1.001 | .992 |
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19 | 1 | 4 | 2.05 | .970 | .294 | .524 | -1.139 | 1.014 |
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19 | 1269.00 | 7548.00 | 3817.368 | 1962.78 | .638 | .524 | -1.067 | 1.014 |
The minimum and maximum values indicate the variables in the dataset Any value not contained in the range is therefore easy to identify implying that these values are outliers The mean and standard deviation for ethical leadership is approximately 205 and 0848 respectively This implies that it is not possible to have equality in means and variances Therefore, it is averagely possible that the variables follow the normal distribution The mean and variance for the corporate governance is approximately 205 and 0970 which are not equal The skew-ness and kurtosis measures are important in indicating the level of symmetry of the distribution of the variables in the dataset The skew-ness and Kutorsis measures both indicates even distribution of the variables which means that the variables can be used to explain variation between them
Correlation Analysis matrix:
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1 | -0.225 | -0.171 | 0.132 | -0.894 | 0.537 |
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-0.225 | 1 | 0.93 | -0.922 | 0.23 | 0.034 |
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-0.171 | 0.93 | 1 | -0.829 | 0.158 | -0.01 |
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0.132 | -0.922 | -0.829 | 1 | -0.228 | -0.103 |
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-0.894 | 0.23 | 0.158 | -0.228 | 1 | -0.63 |
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0.537 | 0.034 | -0.01 | -0.103 | -0.63 | 1 |
The above results stipulate both positive and negative association between different pairs of variables The fact remains that significant relationships exist between the variables despite the negativity or positivity of the correlation coefficients For instance, the correlation coefficient between the financial performance and corruption in different organization is positive but quite far from 1 This implies there exists a weak positive association between financial performance of different organizations under study and corruption cases in the organization Therefore, these variables can be used to significantly explain variation between each other There also exists a positive relationship between financial performance and racial discrimination in the industries This means that racial discrimination has a considerable effect on the overall financial performance of the institution, which implies that equal treatment despite the race should be advocated for to assist in improving performance
The correlation coefficient in Table 2 between corporate governance and ethical leadership is approximately 0.53 which indicates a strongly positive association between the given variables implying significant association. Similarly, highly positive correlation coefficient between corruption in the organizations and racial discrimination is observed (approximately 0.93).
This indicates a positive significant association between these factors which implies that it is possible that organizations that face the racial discrimination challenges also suffer corruption showing that the working environment is unethical which causes poor performance. This relationship will also be observed using the regression analysis.
The above model summary indicates quite interesting results. The R-squared statistic is approximately 0.89. This means that there exists approximately 89% amount of variation between all the variables in the econometric regression model. Therefore, all the variables in the model can be used to explain variation between each other which confirms that the model is very significant.
Regression Results
Model | Unstandardized Coefficients | Standardized Coefficients | t | Sig. | ||
B | Std. Error | Beta | ||||
( |
14339.49 | 2692.394 | 5.326 | 0 | ||
my ethical behavior is good | -1055.34 | 442.839 | -0.564 | -2.383 | 0.033 | |
Is there racial discrimination in your organization | -382.82 | 473.519 | -0.24 | -0.808 | 0.433 | |
Ethical leadership | -1769.28 | 270.112 | -0.765 | -6.55 | 0 | |
Is there corruption in your organization | -354.128 | 643.528 | -0.224 | -0.55 | 0.591 | |
Corporate governance | -551.737 | 227.237 | -0.273 | -2.428 | 0.03 | |
R Square | 0.894 | |||||
Adjusted R Square | 0.856 |
The above histogram and normal probability approximates the normal distribution which is one of the most applicable probability distribution. This is shown by the Gaussian curve demonstrated on the histogram and the normal curve implying equality in means and variances between the most important variables in the data under consideration. The normal probability plot shows significance of the relationship because the dots are aligned in a linear form indicating a good relationship between the variables since it means that the data approximates the normal distribution
The above scatterplots do not show effective association between the variables explained, but a vague association between the pair of factors is observed indicating a considerable amount of variation between the pairs.
Data analysis is a very important aspect of scientific research since it breaks down data in simple and more visually appealing illustrations. Since the econometric model considered is significant, it implies that all the causative factors of the financial performance should be considered in-order to promote the growth of different organization over different fiscal years. The attributes that were specifically significant such as the ethical attributes, corporate governance, and ethical leadership are a good basis for improvements and further study. Thus, the business practitioners should embrace the effective ethical attributes, corporate governance and ethical leadership in order to improve the well-being of the organizations.
The above regression results (
Therefore, the null hypothesis is accepted and we conclude that there exists no significant relationship between corruption and racial discrimination to the ethical behavior and effectively the total financial performance. The p-value corresponding to corporate governance is approximately 0.030 which indicates significant association between corporate governance and financial performance. Similarly, the null hypothesis is rejected and we conclude that there exists a significant influence of corporate governance to the overall financial performance.
Generally all the vital attributes and variables are clearly depicting appropriate association in reference to the previous study and the analyzed results.
The factors financial performance and good ethical behaviors indicate a negative association between the variables, which shows the negative effect of poor ethical attributes to decreased financial performance. The corporate governance aspect in reference to the corruption in the organization indicates a substantive positive association which implies that corporate governance is affected by unethical attributes such as corruption. The correlation matrix therefore proves to be a good basis for explaining variation and relationship between variables. However, the significance of the relationships can be confirmed using the regression analysis.
In conclusion, this study has given us an in-depth understanding of the effects of ethical attributes such as ethical leadership and corporate governance to the overall financial development and performance of an organization. The factors and variables listed have proven to have a negative or positive effect to the business performance. This means that every variable in this dataset has an important implication on the growth and development of different business organizations.
The business practitioners should therefore use all the factors and variables associated to the financial performance to perform timely analysis on the effects of these variables. The ethical issues have proved to be a great concern because of its immense influence on the financial performance. Thus, the management should advocate and insist on effective ethical attributes from all members of staff. The leadership aspect in every organization is very vital in effective running of all departments of the organization, therefore excellent leadership qualities are very appropriate to enhance vigilant overseeing of all the departments of the organization.
Funding: National Natural Science Foundation of China (No. 71371087)