Board ethical commitment and corporate performance: Malaysian evidence

Purpose - The purpose of this study is to examine the relationship between board ethical commitment and the performance of the company. When directors embed ethics in discharging their duty, it will prohibit frauds, unnecessary actions and decisions that are detrimental to the company. Design/methodology/approach - This study collected data for two years i.e. 2013 and 2014 from the annual report of the biggest 500 companies by market capitalisation as of 31 December 2013 listed under Bursa Malaysia stock exchange. Board ethical commitment is measured based on the Malaysian Code of Corporate Governance (MCCG) and various international best practices while corporate performance is measured based on return on equity, return on assets, net profit margin, market to book value and TobinQ. Findings - This study found that ethical commitment by the board has a significant positive relationship with corporate performance. The findings are robust to the alternative performance measurements and lagged one-year corporate performance. Research limitations/implications - This paper enhances the theoretical understanding of the contribution of the board of ethical commitment to the sustainable performance of the company. However, this study suffered from a limited data collection period of two years only from the annual report of the company. Practical implications - This study provides an indicator that the directors need to provide a good ethical leadership example to the employees and committed to built a good ethical work culture in the organisation via establishment of code of ethics. In addition, this code needs to be promoted, enforced and embedded in the operations of the organisation. Originality/value - This study is original as it not only examines board ethical commitment from MCCG 2012 but also international best practices from various countries such as UK, USA and Europe. It also contributed to the literature and theoretical understanding of the importance of board ethical commitment specifically in developing countries like Malaysia that scarce in the literature.