Does country-level governance enhance ethical behaviour of firms? An African perspective

Abstract

Purpose – The purpose of this paper is to examine the relationship between country-level governance and ethical behaviour of firms in African countries in the period 2009-2012. Design/methodology/approach – It uses a broad set of country-level governance ratings by the World Bank and data on ethical behaviour of firms by the World Economic Forum’s report on Global Competitiveness. Full data of a total of 39 African economies out of the 54 (including two disputed) economies over the sample period were obtained for this analysis. Findings – The authors find a statistically significant and positive relationship between country-level rule of law, regulatory quality, control of corruption and democracy, and firm ethical behaviour of firms in African economies. This implies that improvement in country-level rule of law, regulatory quality, control of corruption and democracy tends to be associated with sound ethical behaviour of firms in African economies. However, the authors did not find any statistically significant relationship between country-level accountability, political stability, outsider model of governance and ethical behaviour of firms. Practical implications – As a continent that is yet to fully discover its potential, the practice of good governance is particularly germane, as this may not only help ensure sound ethical standards of corporations, but may also aid the continent to attract foreign investors, which will beneficially impact economic growth and development of African economies. In this respect, efforts by governments across the continent to ensuring good governance are laudable. One possible way is to ensure an effective and transparent enforcement of laws to stimulate compliance in a specifically clear-cut manner by crafting costs for non-compliance (for instance, legal costs, investigation cost, imprisonment, dent to image and fines). Originality/value – This paper reinforces the belief that the existence of country-level good governance could provide and enhance cohesive and internally consistent ethical standards of companies.

Impact of country-level corporate governance on entrepreneurial conditions

“…Similarly, different studies reported a positive link between regulatory quality and entrepreneurship aspects (e.g. Cule & Fulton, 2013;Avram et al, 2015;Chambers & Munemo, 2017;Agyemang et al, 2015;Kamarudin et al, 2016;Tong et al, 2018;Montinola & Jackman, 2002;Treisman, 2000). In the same context, Chambers and Munemo (2017) suggest that the level of entrepreneurship is highly determined by a country's regulatory and institutional environment.…”

“…Several studies have reported a link between rule of law and entrepreneurship (e.g. Shagbazian & Aistov, 2017;Ngunjiri, 2010;Haggard & Haggard, 2018;Agyemang et al, 2015;Kamarudin et al, 2016;Saona, 2016;Tong et al, 2018;Goltz et al, 2015). The literature review establishes a piece of evidence on the negative effect of regulations (Djankov et al, 2002;Klapper et al, 2006).…”

“…For example, some studies explored CLCG with its relation to accounting, finance, and/or auditing issues (e.g. Avram et al, 2015;Hillier et al, 2011;Lin et al, 2014;Pindado et al, 2015;Sayed & Chawla, 2017;Thenmozhi & Narayanan, 2016), economic growth (Boţa- Avram et al, 2018), FDI (Agyemang et al, 2019), ethical behaviour of firms (Agyemang et al, 2015) and investors' protection (Rachisan et al, 2017), entrepreneurship (Groşanu et al, 2015), disclosure and compliance (Ernstberger & Grüning, 2013;Sarhan et al, 2019) firm value (Saona & San Martín, 2016) and financial analysis (Seifert & Gonenc, 2018) (See Table 1). Groşanu et al (2015) examined "the influence of country-level governance on business environment and entrepreneurship" in different states over the period of 2007up to 2012.…”

“…They advocate that effective country-level governance is an essential driver of economic and social development (Ngobo & Fouda, 2012;Rachisan et al, 2017). However, the extent of compliance with the legal structures of countries by businesses and enterprises is widely dependent on country-level good governance (Agyemang et al, 2015). Therefore, a good structure of country-level governance should be able to function as a good moderator of economic interactions among different players within a business environment (Avram et al, 2015).…”

“…Empirical evidence from prior studies has indicated that entrepreneurial conditions in any country could be influenced by different factors of CLCG such as control of corruption (e.g. Agyemang et al, 2015;Avnimelech et al, 2011;Cule & Fulton, 2013;Shagbazian & Aistov, 2017;Swamy et al, 2001). Many studies agree that there exists a negative relationship that affects the level of corruption (Avnimelech et al, 2014;Jiménez & Alon, 2018;Shagbazian & Aistov, 2017).…”