Does Better Corporate Governance and Legal Framework Result in Ethical Behaviour of Firms in Emerging Markets? An Examination Using Partial Least Square Estimation

Abstract

Ethics is an all-pervasive subject of business, but its presence is rarely observed and measured in matters of corporate governance. From ethical point of view, the aim of corporate governance should be to ensure that certain moral standards are maintained and the legal system should be complied to while dealing with both external and internal business decisions that impact the stakeholders. However, the reality is that the companies concentrate on efficient governance mechanism at the cost of non-investor stakeholders with the objective to increase shareholder profitability and firm's short term financial value. This phenomenon gets pronounced in emerging markets. In this context, this study provides a detailed framework and a model for analysing how the governance and legal framework have an effect on the ethical behaviour of firms in 21 emerging markets. The findings of the study suggest that corporate governance and its legal framework do have an impact on ethical behaviour of firms in emerging markets. The results also suggest that firms operating in these countries tend to have a direct relationship with legal system and ethical behaviour and negative relationship with corporate governance and ethical behaviour.