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

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 offirmsin 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.