Title

Determinants of Ethical Climate in the Firm:The Role of Governance Systems and Environmental Uncertainty

Publication Type

Journal Article

Publication Date

12-2014

Abstract

Corporate governance mechanisms essentially reside in the control structure/systems of most organizations and provide, theoretically at least, a conduit to support a better organizational ethical climate. This linkage, however, has seldom been portrayed this way in the literature and, correspondingly, there are virtually no empirical studies to offer increased understanding, especially with respect to the professional accountant in practice. Accordingly, this paper empirically assesses the governance mechanisms sanctioned by the International Federation of Accountants (2009) as determinants of an organization’s ethical climate based on evidence from a Canadian sample of CFOs/controllers. The ethics/leadership literature relating to ethical climate provides the theoretical underpinnings while organizational contingency theory supports examining the moderating effects of perceived environmental uncertainty (PEU). Increases in corporate governance control mechanisms are found to positively influence ethical climate. A significant relationship persists under both low and high levels of PEU but, as expected, it is much stronger when the level of PEU is low – which raises concerns about how to embrace a stronger ethical climate when uncertainty is high. This paper contributes to the governance and ethics literature by providing empirical evidence that normative directives on evaluating and improving governance in organizations from global accounting authorities, such as the IFAC, are effective in shaping firms’ ethical climates in practice.

Keywords

Governance, Control Systems, Ethical Climate, Environmental Uncertainty

Discipline

Accounting

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

International Journal of Management and Information Systems

Volume

18

Issue

4

First Page

241

Last Page

260

ISSN

1546-5748

Publisher

Clute Institute

Additional URL

http://cluteinstitute.com/ojs/index.php/IJMIS/article/view/8833/8812