The Impact of Government Integrity and Culture on Corporate Leadership Practices: Evidence from the Field and the Laboratory

ArticleinThe Leadership Quarterly forthcoming · July 2019with 44 Reads
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Abstract
A useful and complementary approach to understand what drives corporate leaders to choose certain corporate governance practices is to look beyond the individual traits and characteristics of the leader, examining the effect of the elements of the institutional environment on managerial decisions. Drawing on the contextual approach to leadership and insights from institutional theory, this study examines the impact of government integrity, as an omnibus contextual factor of leadership, on corporate governance practices. Specifically, from the field study, we find that government integrity has a positive causal effect on corporate leaders' accountability to shareholders and the board of directors. We also find the same positive effect of government integrity on auditing and reporting reports and on the protection of minority interests. The positive impact of government integrity on corporate leaders' actions is also confirmed using a laboratory study. In the controlled laboratory environment, we show that a social norm of promoting leadership integrity, deriving from the broad context, positively impacts on corporate responsibility especially in contexts where the government lacks credibility. Specifically, we find that corruption and bribery by corporate leaders is low in contexts that are transparent and high in contexts with low government integrity. These findings have important implications for policymakers, practitioners as well as for shareholders.

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