1992; Ponemon, 1990, 1992a; Shaub, 1989,1994); and (2) ethical reasoning could be a major determinant of professional judgement (Arnoldand Ponemon, 1991; Peonmon, 1990, 1992a,1992b; Ponemon and Gabhart, 1990; and Tsui,1996) as well as unethical behaviour (Ponemon,1992b).However, some authors (Pratt, 1980; Gul,1984; Tsui, 1996) have argued that simply byconsidering the cognitive development impact onthe ethical reasoning process may be inadequatesince ethical decision-making behaviour cannotbe just predicted by an understanding of thecognitive process and other “. . . individual andsituational variables [can] interact with thecognitive components to determine how anindividual is likely to behave in response to anethical dilemma” (Trevino, 1986, p. 602). Hence,the focus of this research is to investigate theimpact of guanxi, as an individual variable, onauditors’ professional judgement.
What is guanxi?
Guanxi is closely related to the Confucian doc-trines which stress the ties of kinship and closepersonal relationships. In business terms, guanxior personal connection can be seen as the man-ifestation of group orientation through whichinterpersonal associations can replace formalorganisational structure (Boisot, 1986; Coleman,1993; Putnam, 1993; Walder, 1986). The impor-tance of guanxi over formal business relationshipscan be illustrated through the conclusion of business contracts in Chinese communities. InChinese business communities, business contractsmay be specified in legal terms but the imple-mentation of them can be based on trust. Thisis supported by a study conducted by Kao (1996)which indicated that guanxi is the pre-requisitefor the conclusion of a contract in Taiwan. Inaddition, many studies (Alston 1989; Hall andXu, 1990; Leung and Yeung, 1995; Nee, 1992,1989; Putnam, 1993; Redding, 1990; Xin andPearce, 1996; Yang, 1994) also stressed theimportance of guanxi in the Chinese businessenvironment. If the Chinese uses guanxi as asubstitute for formal structural support, theinfluence of guanxi on the ethical reasoningprocess will be a very interesting topic to study.Since no serious research has looked into theinfluence of guanxi in the ethical decision-making process, this study is designed to fill inthis research gap. As an exploratory study, thescope of this study is limited to only investigatethe impact of guanxi on the moral decisionmaking process of Chinese professional accoun-tants in Hong Kong when they are confrontedwith an ethical dilemma.
Statement of hypothesis
The most important question this study strivesto answer is the effect of ethical reasoning onthe relationships between guanxi and auditors’behaviour in an audit conflict situation. Thisstudy hypotheses that auditor’s behaviour in anaudit conflict situation will be influenced by theexistence of guanxi in the Chinese culture. Inaddition, this relationship between guanxi andauditors’ behaviour is also hypothesised to bedepending on the level of cognitive moral devel-opment of the auditors. Besides, since the rela-tionship between cognitive moral developmentand the behaviour of an auditor has been sup-ported by previous research, as manifested in theearlier section, this study also provides further evidence to the validity of this relationship. Themodel is depicted in Figure 1 below.Hence, based on this model, the followingthree hypotheses are tested:88
Alan K. M. Au and Danny S. N. Wong
Figure 1. The effect of ethical reasoning and guanxion ethical judgement.