Investigating Country-Level Determinant Factors on Ethical Behavior of Firms: Evidence from CEE Countries

Abstract

Using panel data for 16 Central and Eastern European countries from 2006 to 2015, we report there are six statistically explanatory variables for the variation of ethical behavior of firms in the CEE countries such as judicial independence, protection of minority shareholders interest, wastefulness of government spending, favoritism in decisions of government officials, rule of law and public trust in politicians. By using panel data related to 16 Central and Eastern European countries for a period of 10 years (2006–2015), we investigate the influence of specific legal, political, and country-level governance determinant factors on firms’ ethical behavior in the CEE region. Thus, we report there are certain statistically explanatory variables for the variation of ethical conduct of firms in the CEE countries such as judicial independence; strength of investor protection; protection of minority shareholders interest; wastefulness of government spending; government effectiveness; diversion of public funds; the rule of law and public trust in politicians. This study indicates the necessity for policymakers and political leaders to look for practical solutions to ensure the necessary enforcement mechanisms for improving firms’ ethical behavior in CEE countries.