The Leadership Quarterly 30 (2019) 101303

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The Leadership Quarterly

journal homepage: www.elsevier.com/locate/leaqua

Full Length Article

The impact of government integrity and culture on corporate leadership T

practices: Evidence from the field and the laboratory☆
Amon Chizemaa, , Ganna Pogrebnab,1
⁎

a
Birmingham Business School, University of Birmingham, Edgbaston, Birmingham B15 2TT, United Kingdom
b
Birmingham Business School, Economics Department, University of Birmingham, Edgbaston, Birmingham B15 2TT, United Kingdom

ABSTRACT

To understand what drives corporate leaders to choose certain corporate governance practices there is need to look beyond the individual traits 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 on corporate governance practices. From the field study, we find that government
integrity has a positive causal effect on corporate leaders' corporate governance decisions and choices. The positive impact of government integrity on corporate
leaders' actions is also confirmed using a laboratory study, showing that a social norm of promoting leadership integrity, positively impacts on corporate respon-
sibility 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.

Introduction
What drives corporate leaders to choose certain corporate decisions
or practices? Moreover, what influences the manner in which they ef-
fectively implement such decisions and practices in organizations? In
an attempt to answer questions of this nature, previous leadership and
corporate governance studies, employing a leader-centric approach,
have focused on examining specific universal traits and behavioral
styles that make some leaders more effective than others (Lord, Day,
Zaccaro, Avolio, & Eagly, 2017). For example, upper echelons theory
(Hambrick & Mason, 1984) and the literature on executive personality
(e.g., Hiller & Hambrick, 2005; Peterson, Walumbwa, Byron, &
Myrowitz, 2009) suggest that the leadership behaviors and decisions of
senior executives are influenced by both demographic characteristics
such as background, expertise, tenure, and age and by psychological
characteristics such as personality. Consistent with this view, Hogan
and Kaiser (2005) note that “who we are determines how we lead” (p.
175). As such, upper echelons theory points to the key role of the top
management team (TMT) in shaping work processes and influencing
organizational outcomes (Finkelstein & Hambrick, 1996; Hambrick &
Mason, 1984).
An omission in studies that have focused exclusively on the effects
of individual characteristics of top leadership is the realization that
decisions are made within a given context (Johns, 2006; Rousseau &
Fried, 2001). Indeed, studies that examine the effect of leaders' traits
and behavioral styles without full consideration of the context are not
necessarily invalid but incomplete.
Separately and, at times, collectively, insights from institutional
theory and contextual leadership (Johns, 2006; Oc, 2018) provide the
basis on which a better understanding of the influence of context on
managerial decisions and choices can be drawn. According to the in-
stitutional perspective, human and social behaviors, among other fac-
tors, are influenced by country-level institutions, such as norms, rou-
tines and historical patterns, which determine isomorphism among
individuals and organizations (Chizema, 2008; DiMaggio & Powell,
1983; Scott, 2001). This sociological perspective is consistent with re-
search in financial economics that has shown that country institutions
or characteristics explain a large proportion of the variation of corpo-
rate governance indexes across firms (Stulz, 2005). For example, a
study on corporate governance by Doidge, Karolyi, and Stulz (2004)
demonstrates that country-level factors influence governance practices
much more than do firm-or even industry-level data. Dyck and Zingales
(2004) show that control premia vary systematically across countries.
The strength of these observations is probably behind Davis' (2005)
suggestion that the future of relevant corporate governance research
should seek to understand the institutional context in which it occurs,

☆
We are grateful to the action editor as well as to 3 anonymous referees for many insightful comments and suggestions, which helped to significantly improve this
manuscript. We are grateful for financial support awarded by the Research Support Fund from the College of Social Sciences at the University of Birmingham. Ganna
Pogrebna also acknowledges financial support from the UKRI projects EP/P011896/2 and ES/R007926/1.
⁎
Corresponding author is also an Extraordinary Professor at The Gordon Institute of Management Science (GIBS), University of Pretoria, South Africa.
E-mail addresses: a.chizema@bham.ac.uk (A. Chizema), gpogrebna@turing.ac.uk (G. Pogrebna).
1
Alan Turing Institute, 96 Euston Rd, Kings Cross, London NW1 2DB, United Kingdom.

https://doi.org/10.1016/j.leaqua.2019.07.001
Received 1 February 2018; Received in revised form 1 July 2019; Accepted 5 July 2019
Available online 10 July 2019
1048-9843/ © 2019 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/BY-NC-ND/4.0/).
A. Chizema and G. Pogrebna
in contrast to the more traditional agency or transaction cost perspec-
tive.
In the same vein, Porter and McLaughlin (2006) suggest that lea-
dership in organizations does not take place in a vacuum (the term
“leadership vacuum” was first coined by House & Aditya, 1997, p. 445)
but does so in organizational and country contexts. Following their call
for research that should make context, “a primary object of interest, ra-
ther than treating it as almost an afterthought” (p. 571), a stream of re-
search has since explored context in attempting to understand the effect
of corporate leadership on firm decisions and outcomes (Bullough,
Kroeck, Newbury, Kundu, & Lowe, 2012; Chizema, Kamuriwo, &
Shinozawa, 2015). A common assumption in these studies is that the
effectiveness of leaders' choices may be facilitated by some contexts and
inhibited by others.
Research on the macro context of leadership, discussed above, has
considered both the effect of formal and informal institutions on lea-
ders' choice of practices or decisions. Informal institutions are enduring
systems of shared meanings and collective understandings that, while
not codified into documented rules and standards, reflect a socially
constructed reality that shapes cohesion and coordination among in-
dividuals in a society (Scott, 2001).
A central construct from the context defined by informal institutions
is national culture that constitutes created and learned standards for
perception, cognition, judgment or behavior shared by members of a
certain group or country (North, 1990). Culture refers to the “complex
of meanings, symbols and assumptions about what is good or bad, le-
gitimate or illegitimate that underlie the prevailing practices and norms
in a society.” (Licht, Goldschmidt, & Schwartz, 2005: 233).
Several attributes constitute or contribute to the whole construct of
national culture. For example, government integrity, the quality of
national governance in accordance with relevant moral values and
norms which include consistency, coherence, and lawfulness and ab-
sence of corruption (OECD, 2013), relates closely to national culture.
We, therefore, propose government integrity as yet another variant of
informal institutions within the realm of macro context that potentially
bears influence on corporate leadership's decision-making and the
manner in which decisions are implemented.
From public governance literature, government integrity has been
variously defined as being consistent and coherent in principles, values,
and action (Montefiore, 1999), following regime values and rules
(Rohr, 1989), and acting in accordance with relevant moral values,
norms, and rules (Huberts, Lasthuizen, & Peeters, 2006). Integrity is,
therefore, an important factor and has been considered a necessary
quality for governments to have (OECD, 2013).
According to the OECD (2013), government integrity is the align-
ment of government and public institutions with broader principles and
standards of conduct that contribute to safeguarding the public interest
while preventing corruption. Thus, government integrity could also be
observed through the quality of enforcement of a country's laws and
regulations (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998;
Rothstein & Teorell, 2008), suggesting that it is a public perception
derived from the efficiency or non-efficiency levels of formal institu-
tions.
A commonly used proxy for government integrity, which we also
use in this study, is the extent to which a state is free from corruption
(Fredriksson, Neumayer, & Ujhelyi, 2007). According to Fijnaut (2002),
corruption is an umbrella concept, covering all or most types of in-
tegrity violation or unethical behavior. We argue that government in-
tegrity, the mirror image of corruption, is, therefore, an informal in-
stitution and thus part of the context in which corporate leadership
takes place.
We seek to add to the stream of contextual leadership research by
examining the effect of government integrity on corporate governance
practices. We take the view that leadership is embedded in the context
(Johns, 2006) and that it is socially constructed in and from a context
where patterns over time must be considered and where history and
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The Leadership Quarterly 30 (2019) 101303
country institutions matter (North, 1990).
As explained above, sociological perspectives provide explanations
of the impact of contextual factors on leadership at the macro level
where, collectively, typical actions, beliefs, desires and choices among
members of society are constrained by informal rules or social norms
(Hedstrom & Ylikoski, 2010). This approach is useful in understanding
collective action at the national level, prompting Hedstrom and
Swedberg (1998) to suggest that associations of macro factors can be
better understood by examining the behavior, beliefs and decision-
making of individuals in a given context. They suggest that the first step
involves identifying the process through which situational or contextual
factors constrain individuals' action.
The second step is about identifying the action-formation mechan-
isms that link individual desires and beliefs to their actions or choices.
The final step involves specifying the transformational approaches by
which individuals, through their actions and interactions, generate
various intended and unintended social outcomes.
In this study, we explore the effects of macro factors on leadership
choices through two complimentary methodological approaches. First,
we use a field data analysis to show the macro-level association be-
tween government integrity and collective corporate leadership choices
and outcomes. Second, we complement the first study by using a con-
trolled laboratory experiment (e.g., Zizzo, 2010) to capture the whole
chain of contextual, action-formation and transformation mechanisms
of corporate leadership. This approach of using field data in conjunc-
tion with an experimental study has been previously employed in many
impactful leadership papers (e.g., O'Reilly, Doerr, & Chatman, 2018;
Steffens et al., 2018, to name a few).
This paper makes at least three contributions to existing literature.
First, we heed the calls to determine how national context and in-
stitutions shape corporate governance and leadership (Aguilera &
Jackson, 2003), offering insights to comparative institutional analysis
using field data. As such, we join the growing stream of literature that is
transitioning from a-contextual research (Bamberger, 2008; Minichilli,
Zattoni, Nielsen, & Huse, 2012) to the explicit consideration of contexts
within the domain of leadership and corporate governance (Bullough
et al., 2012; Chizema, Liu, Lu, & Gao, 2015). Second, by considering the
impact of a macro-social context, through government integrity, on
corporate governance practices, this study offers an alternative ap-
proach to the agency paradigm (Jensen & Meckling, 1976) that has
largely dominated corporate governance studies. Finally, by conducting
a controlled laboratory study, we test how social norm of contextual
integrity impacts on leadership choices.
The remainder of this paper is structured as follows. The following
section provides a review of the contextual leadership literature, fol-
lowed by one that discusses government integrity and theoretical ex-
planations of organizational legitimacy. Hypotheses of the field study
are then developed under the subsections. The next sections present the
laboratory experiment that is used to support the field study, formulates
experimental hypotheses and provides the main findings of the ex-
perimental study. The remaining part of the paper is devoted to a dis-
cussion of the findings, contributions, limitations with the conclusion at
the end.
A contextual approach to leadership
In its broad sense, contextual leadership examines whether situa-
tional or contextual factors reduce or improve the impact of leadership
practices (Oc, 2018). Moreover, it explores how leadership takes place
in specific contextual settings. As described by Osborn, Hunt, and Jauch
(2002), a contextual theory of leadership is one that recognizes that
leadership is embedded and “socially constructed in and from a con-
text” (p. 798), and they put it well as they further claim that, “leader-
ship and its effectiveness, in large part, are dependent upon the context.
Change the context and leadership changes” (p. 797) and the outcomes
change too.
A. Chizema and G. Pogrebna
In leadership research, several scholars have provided varied fra-
meworks to understand context and its effect on leadership. For ex-
ample, Porter and McLaughlin (2006) proposed seven components of
the organizational context, including culture/climate, goals/purposes,
structure and time. Ayman and Adams (2012) view leadership context
through the lenses of cultural and organizational factors.
According to Oc (2018), a comprehensive approach to the con-
ceptualization of contextual leadership is one done by Johns (2006)
who conceptualizes context at two different levels: the omnibus and
discrete contexts. The omnibus context is about the broad environ-
mental influences and provides answers to questions of a macro nature
such as the what, why, who, when and where of contextual leadership
(Johns, 2006; Oc, 2018). For example, under the where of the omnibus
context, the researcher could consider national culture or institutional
forces. In contrast, the discrete context is about specific situational
variables that influence behavior directly or that are used to moderate
relationships between variables (Johns, 2006). The discrete context
focuses on aspects such as task, social, physical and temporal (Johns,
2006; Oc, 2018). For example, under the task of the discrete context,
the researcher could consider task or job characteristics.
From the two levels of Johns' (2006) conceptualization of con-
textual leadership, it is the omnibus context that relates to the hetero-
geneity of national settings and, indeed, one that is of interest to our
study. As Oc (2018: 219) states, “…an omnibus approach to context will
include studies that examine the top-down effects of societal trends, eco-
nomic conditions, national culture, or other macro level factors.” As pointed
out above, one of the dimensions of the omnibus context of leadership is
the actual location where leadership takes place.
Drawing on the omnibus context, some studies have considered
contextual factors as a macro-level system-based constraint or enabler
(e.g. institutional forces) that describes where leadership takes place,
modelling their direct effect to explain variance in leadership or its
outcomes across different contexts (Currie, Lockett, & Suhomlinova,
2009). For example, Bullough et al. (2012), drawing on institutional
theory, sought to find the effects of six omnibus contextual factors,
including business environment, societal development, economics,
technology and physical infrastructure, political freedom and cultural
variables, on women's participation in political leadership across 181
countries. Chizema, Liu, et al. (2015) draw on social role theory, em-
ploying three social institutional forces (women's representation in
politics, economic environment, and religiosity) to explain the presence
or absence of female directors on boards across 45 countries. More
recently, Stoker, Garretsen, and Soudis (2019) show that across firms
and countries, and controlling for individual managerial variation, the
2008 financial crisis led, on average, to an increase in directive lea-
dership.
Similarly, for a country-level study such as this current one, the
omnibus context characterized by variation among countries' institu-
tional settings provides a perfect theoretical framework to understand
the effect of government integrity on the choices and decisions made by
corporate leaders.
Government integrity, institutional legitimacy and corporate
leaders' decision-making
A suitable lens to explain firms' responses to government actions is
institutional theory (Chizema & Kim, 2010; Rodriguez, Uhlenbruck, &
Eden, 2005) and applying this perspective, that emphasizes contextual
factors influencing corporate decisions, is an appropriate approach for
our study. The use of institutional theory is also suited to our study
because government integrity is an element of the norms and rules of
states. We, therefore, draw on institutional theory to discuss the im-
plications of government integrity or its absence for the firm's organi-
zational legitimacy, consequently showing how the need for organiza-
tional legitimacy determines corporate leaders' decisions and choices.
Our approach, here, is consistent with Hedstrom and Swedberg's (1998)
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The Leadership Quarterly 30 (2019) 101303
suggestion of starting by identifying the process through which con-
textual factors determine individuals' action followed by identifying the
action-formation mechanisms that link individuals' beliefs and con-
straints to their choices.
A core insight from institutional theory is that organizations strive
for external legitimacy by complying with their social institutional
contexts (Scott, 2008). From this effort, organizations expect their ac-
tions to be perceived as being “desirable, proper or appropriate within
some socially constructed systems of norms, values, beliefs and defi-
nitions” (Suchman, 1995: 574). Without legitimacy, firms may not have
access to resources that are important for their survival (Scott, 2001).
To determine what constitutes legitimacy, firms rely on cues from
the institutional environment. If institutional cues include corrupt or
unethical practices, such corrupt practices may have an impact on a
firm's actions in its search of institutional legitimacy (Keig, Brouthers, &
Marshall, 2015).
Government integrity, indeed, the central contextual factor under
consideration in this study, belongs to the group of national institutions
that are classified as informal (DiMaggio & Powell, 1983) and is a key
institutional cue that potentially guides the behavior of firms in their
search for legitimacy (Rodriguez et al., 2005). As pointed out earlier, in
a national context, government integrity is a behavioral expectation of
public institutions to conduct their business in a socially accepted
manner. The absence of such an expected behavior manifests in cor-
ruption, a socially unacceptable situation, manifest in violation against
the moral norms and values for political and administrative behavior
(Fijnaut, 2002).
In order to succeed in corrupt environments, corporate leaders may
have to conform to institutional corruption pressures, gaining legiti-
macy in the eyes of corrupt government officials and with corrupt
business partners (Ufere, Perelli, Boland, & Carlsson, 2012). In such
environments, leading firms may have achieved their success through
corrupt practices and through forces of mimetic isomorphism
(DiMaggio & Powell, 1983), the rest of the firms in the same institu-
tional environment may follow suit, suggesting a contagion effect of
bad corporate practices.
As corruption becomes normalized as a taken-for-granted behavior
(Ufere et al., 2012), corporate leaders in low-government-integrity
environments may embrace the same behavior in their decision-making
and choices, manifesting through corporate irresponsibility. Ashforth
and Anand (2003) argue that when corruption becomes in-
stitutionalized, it becomes an integral part of day-to-day activities to
such an extent that individuals may be unable to see the in-
appropriateness of their behaviors. Here, the national environment of
low government integrity becomes culturally accepted as normal by the
collective of national actors such that the behavior at government level
may influence and encourage that at the corporate level.
For corporate leaders in environments with low government in-
tegrity, the logic of corporate governance strays away from notions of
accountability, responsibility and transparency. There is evidence for
this claim from previous studies. For example, Keig et al. (2015) argue
that firms that establish and maintain operations in portfolios of loca-
tions characterized by higher levels of corruption are more likely to act
irresponsibly, as such environments may allow or even encourage
corporate leaders to side-step socially responsible behavior. In an ear-
lier study, Tan (2009:174) pointed out that in environments where
formal corruption flourishes due to lack of controls, firms “may become
motivated to lower ethical standards, ranging from environmental
negligence and abusive labor practice to corrupt human resource
management”. In contrast, in a recent study, Ioannou and Serafeim
(2012) found that firms headquartered in countries characterized by
lower public sector corruption had higher levels of social responsibility.
Moreover, competitive pressures in corrupt environments may push
corporate leaders to make irresponsible decisions. Scholars have ob-
served that operating in corrupt environments potentially increases
direct and indirect transaction costs for the firm (Rose-Ackerman, 1975;
A. Chizema and G. Pogrebna
Uhlenbruck, Rodriguez, Doh, & Eden, 2006). As Nwabuzor (2005:129)
posits “companies that are burdened with under-the-table payments may try
to contain their costs by cutting corners”. Ideally, any threat to a firm's
survival in a corrupt environment may increase the likelihood that it
will pursue irresponsible actions to remain viable (Campbell, 2007).
Consistent with the overarching argument drawn on the contextual
leadership and institutional theory, we argue that government integrity
potentially impacts on the choice and effectiveness of corporate gov-
ernance practices. For example, cross-country studies have shown cor-
ruption (the absence of government integrity) to be associated with
higher corporate borrowing costs, lower stock valuations, and illegiti-
mate and ineffective corporate governance practices (Ng, 2006).
In the sections below, we provide explanation for the four hy-
potheses that government integrity impacts on corporate governance
outcomes namely managerial accountability to shareholders and the
board, auditing and financial reporting, protection of minority interests
and corporate governance, in general.
Government integrity and managerial accountability to shareholders and the
board
Accountability is said to be necessary when actors' conduct impacts
upon the rights or interests of others (Keay & Loughrey, 2015). In the
case of firms, executives, who manage companies as agents, should be
accountable to shareholders (Jensen & Meckling, 1976). This is because
executives have considerable power over, and control of, the affairs of
the company (Fama & Jensen, 1983). For example, they are in charge of
the capital provided by shareholders as well as of any profits that firms
generate. It is, therefore, necessary that executives account for their
actions given the level of power and control they have over the prin-
cipals' resources.
But managerial accountability to shareholders is not ubiquitous,
varying across countries due to different corporate governance systems
(Aguilera & Jackson, 2003). For example, the Anglo-American model of
corporate governance emphasizes shareholder supremacy (Hansmann
& Kraakman, 2001). Going by the logic of shareholder-value max-
imization, with emphasis on the individual interest of the shareholder,
managerial accountability should be expected to be higher in Anglo-
American models of governance than in stakeholder models of Japan
and Germany (Chizema & Shinozawa, 2012).
We argue that beyond the logic drawn on diverse corporate gov-
ernance systems, government integrity potentially determines the ex-
tent to which firms in a given country context exercise managerial ac-
countability on shareholders. We further argue that in national
environments where government integrity is low, laws and regulations
may not be effectively implemented thus failing to provide direction on
how corporate leaders should behave. In such contexts where govern-
ment corruption is pervasive (Rodriguez et al., 2005) corporate leaders
may lose confidence in the word and action (Simons, 2002) of gov-
ernment authorities. Here, the failure of government officials to account
for their actions to the citizens may be taken as an example by corpo-
rate leaders as they deal with shareholders and the board. Thus, the
lack of government accountability, most likely through levels of gov-
ernment integrity, may suggest that corporate leaders may in turn fail
to be accountable to shareholders and to the board of directors. Khatri,
Tsang, and Begley (2006) found that, in the aftermath of the Asian fi-
nancial crisis, corruption was endemic and that it led to weak corporate
governance practices, with no regard for shareholders' interests. In
contrast, Du, Li, Lin, and Wang (2018) found that government integrity
is positively related to efficient corporate investment, a practice bound
to benefit shareholders.
We, therefore, hypothesize that:
Hypothesis 1. Government integrity will positively impact on
managerial accountability to shareholders and the board.
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The Leadership Quarterly 30 (2019) 101303
Government integrity and auditing and financial reporting
Auditing and financial reporting plays a potentially crucial role in
corporate governance. This is because for investors to be more informed
about their investments, basic accounting standards are needed to
render company disclosures interpretable. Auditing and financial re-
porting are, therefore, about the transparency levels of corporations.
Differences in the quality of auditing and financial reporting across
countries have caught the attention of academics (e.g., Ball &
Shivakumar, 2005). These differences, that scholars attribute to the
national institutional setting for financial reporting (Brown, 2011),
have been found even among countries that adopted International Fi-
nancial Reporting Standards (IFRS). Ball and Shivakumar (2005) and
Burgstahler, Hail, and Leuz (2006), among others, have argued that
standards alone will not lead to substantially similar financial reporting
outcomes and that such standards may be less important than other
institutional features of the reporting and legal environment. Consistent
with this view, Brown, Preiato, and Tarca (2014), who studied the ef-
fect of enforcement bodies and auditing with regard to financial re-
porting transparency in Europe, observe that culture and legal setting
(including government integrity, see La Porta et al., 1998) will affect
the output of financial reporting. Picur (2004) examines a sample of 34
countries and concludes that low quality of accounting is predisposed to
a climate of corruption. In similar vein, Riahi-Belkaoui (2004) uses a
cross-country longitudinal dataset covering the period 1985–1998 and
observes that corruption creates a climate conducive to low quality
accounting. Recently, Lourenço, Rathke, Santana, and Branco (2018)
employ data from 33 emerging markets, concluding that country per-
ceived corruption is related to higher incentives for firms to manipulate
earnings.
Moreover, extant work in international accounting argues that the
strength of accounting quality is principally influenced by critical en-
vironmental factors such as economic forces, social forces, legal system,
culture and political system (Doupnik & Salter, 1995; Nobes, 1998). The
legal system, for example, is a typical formal institution and the per-
ception of its strengths or weaknesses as well as its outcomes speak to
the levels of government integrity (Rothstein & Teorell, 2008) with
potential impact on firms' accounting practices. La Porta, Lopez-de-
Silanes, Shleifer, and Vishny (1998) observed that when a nation's legal
system is relatively underdeveloped or if the legal code is enforced
unevenly, respect for the law declines and economic transactions are
generally disorderly and inefficient.
However, there is a plethora of studies suggesting that enforcement
mechanisms alone are not a sufficient condition to deliver effective fi-
nancial reporting at a country level (Brown et al., 2014), calling for
attention to contextual issues in accounting (Mazzi, Slack, &
Tsalavoutas, 2018). We argue that government integrity is an important
and relevant contextual factor in this regard. Indeed, government in-
tegrity is often seen in light of how the government discloses its actions
to the public (Devas & Grant, 2003). Consistent with our main argu-
ment in this paper, government integrity is likely to drive corporate
leadership in its policy and action on corporate accountability and
disclosure. Managers might, therefore, be unable or unwilling to
commit their firms to credible external verification of their income
disclosures if the necessary infrastructure for such verification is not
available.
Hypothesis 2. Government integrity will positively impact
accountability and disclosure as measured in auditing and accounting
reports.
Government integrity and protection of minority shareholders
The contextual effect of government integrity may also influence
corporate leadership on how minority shareholders are protected across
countries. La Porta, Lopez-de-Silanes, and Shleifer (2002) show that
A. Chizema and G. Pogrebna
most firms outside the US are controlled by large shareholders who can
extract private benefits from the corporations they control. A number of
recent papers model this extraction of private benefits (Shleifer &
Wolfenzon, 2002; Doidge, Karolyi, & Stulz, 2007; Stulz, 2005).
Moreover, studying emerging markets, Young, Peng, Ahlstrom,
Bruton, and Jiang (2008) argue that principal-principal agency pro-
blems, that is conflicts between large and small shareholders, exist in
these economies because they typically do not have an effective and
predictable rule of law which, in turn, creates a ‘weak governance’
environment (Dharwadkar, George, & Brandes, 2000, p. 650; Mitton,
2002, p. 215).
Exploitation of minority shareholders by large owners, including
family control, is therefore more severe in corrupt countries, that is,
where government institutions lack integrity (Schleifer & Vishny, 1993;
Zingales, 1994). Consistent with this view, La Porta, Lopez-de-Silanes,
Shleifer, and Vishny (1999) find that French civil law countries, which
they claim to be relatively more corrupt, tend to have particularly poor
protection of minority shareholders. In other words, the lack of gov-
ernment integrity is manifested in poor protection of minority share-
holders as large owners either have no control from the authorities or
bribe government officials to avoid any restrictions to their actions and
choices (La Porta et al., 1999; Ufere et al., 2012; Young et al., 2008).
Based on these arguments, drawn on extant literature, we hypothesize
that governments that lack integrity, in other words, that are more
corrupt, have less impact on the protection of minority shareholders.
Hypothesis 3. Government integrity will positively impact on the
protection of minority interests.
The fourth hypothesis is a summary of the preceding ones, ag-
gregating the three corporate governance outcomes. It is drawn on the
central view that government integrity potentially dictates how cor-
porate leadership behaves in determining the overall health of cor-
porations in a country. Thus, high levels of government integrity or the
state of a country's freedom from corruption translates into better
corporate governance by firms hence:
Hypothesis 4. Government integrity will positively impact on overall
corporate governance practices.
Field study methodology
Data and measures
Our study examines the potential impact of government integrity on
national corporate governance practices. To achieve our objectives, we
source data from a sample of 93 countries that were selected on the
basis of available data on all the study's variables for the period
2011–2018.
Dependent variables
The dependent variables are about corporate governance practices
namely, managerial accountability to shareholders and the board
(ManAcc), strength of audit and accounting reports (AuditRep) and
protection of minority interests (MinIntrst).
Data for the dependent variables are drawn from the Global
Competitiveness Reports of the World Economic Forum (WEF) for the
years 2011 through 2018, for the 93 countries in our sample. The WEF
draws its data from carrying out annual Executive Opinion Surveys of
business executives who are randomly sampled from a large list of
potential respondents from micro companies, small and medium-sized
enterprises and large companies.
The companies represent various sectors including agriculture,
manufacturing industry, non-manufacturing industry (e.g., mining and
quarrying, electricity, gas and water supply, construction) and services.
The number of firms from each sector is in proportion to the share of
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The Leadership Quarterly 30 (2019) 101303
GDP accounted for by the respective sector (Global Competitiveness
Report, 2017–2018). Moreover, the companies from which the re-
spondents are randomly selected, represent a good geographical cov-
erage within a country. The survey is administered in a variety of for-
mats, including face-to-face or telephone interviews with business
executives, mailed paper forms and online surveys. This survey, con-
ducted by WEF, is a reputable source of timely and vital information
related to the business environment in which business executives op-
erate in several countries. It is widely used in academic research (Van
de Walle, 2006; Yang & Huang, 1990). The data from the survey gives a
comparative qualitative picture of the economic and business en-
vironment of each country as provided by a representative group of
business executives.
The three measures used in this study are based on executives' re-
sponses on the following questions: 1) ManAcc: In your country, to
what extent is management accountable to investors and boards of di-
rectors? [1 = not at all; 7 = to a great extent]. 2) AuditRep: In your
country, how strong are financial auditing and reporting standards?
[1 = extremely weak; 7 = extremely strong]. 3) MinIntrst: In your
country, to what extent are the interests of minority shareholders pro-
tected by the legal system? [1 = not protected at all; 7 = fully pro-
tected]. We compute a fourth measure, Corporate Governance Index
(CGI), as the average of the three WEF measures explained above.
Given that several business executives provided responses to the
questions above, over a period of four years, we need to establish
whether these responses are both reliable (interrater reliability-IRR)
and in agreement (interrater agreement-IRA). The presence of both
reliability and agreement would justify our decision to aggregate yearly
survey scores into single variables.
Using STATA, we estimated ICCs, based on the one-way random
effects. We report ICC estimates, the F-static and significance levels for
the four dependent variables. First, the aggregation was justifiable for
managerial accountability to shareholders and the board: F(92,
279) = 27.75; p > 0.01; ICC(1) = 0.87; ICC(2) = 0.96. Second, the
aggregation for audit and accounting reporting was supported: F(92,
279) = 70.65; p > 0.01; ICC(1) = 0.95; ICC(2) = 0.99. Third, the ag-
gregation for the variable on minority interests protection was justified:
F(92, 279) = 62.61; p > 0.01; ICC(1) = 0.94; ICC(2) = 0.98. The ag-
gregation for the fourth variable, CGI, was also justifiable: F(92,
186) = 7.34; p > 0.01; ICC(1) = 0.68; ICC(2) = 0.86.
These ICC estimates (both for ICC1 and ICC2) are high suggesting
the suitability of aggregating yearly survey scores into single variables.
Because the ICC(1) index simultaneously measures IRR and IRA,
LeBreton and Senter (2008) claim that high values may only be ob-
tained when there is both absolute consensus and relative consistency
in judges' ratings.
Independent variable
For this study, we employ government integrity (GovInt) as the in-
dependent variable. The score for GovInt is derived from Transparency
International's Corruption Perceptions Index (CPI) for 2011 and is a
measure of how corrupt public sectors are seen to be in countries
(Fredriksson & Svensson, 2003). According to Transparency Interna-
tional, the index captures the informed views of analysts, business-
people and experts in countries around the world. The CPI is based on a
10-point scale in which a score of 10 indicates very little corruption,
thus high level of government integrity (Fredriksson et al., 2007), and a
score of 0 indicates a very corrupt government. In scoring freedom from
corruption, the Index converts the raw CPI data to a scale of 0 to 100 by
multiplying the CPI score by 10. For example, if a country's raw CPI
data score is 3.5, its overall freedom from corruption score is 35.
Control variables
We use the logarithm of the five-year (2012–2016) growth rate of
A. Chizema and G. Pogrebna
gross domestic product per capita as the basis of our measurement for
level of economic development (GDP). We collect data for this variable
from the World Bank Development Indicators, published on their
website.
We also use the logarithm of foreign direct investment inflows (FDI).
The rationale for this control variable is that foreign direct investment
influences the corporate governance of companies in the target country
as governance practices are diffused from the country of origin.
Moreover, previous studies have shown that countries with higher
foreign equity inflows have a higher degree of protection of shareholder
rights (Guillén & Capron, 2016). To control for this competitive kind of
adoption, we included the logarithm of the average annual inflows of
foreign direct investment for the years 2009 through 2016. Data on
foreign direct investment inflows was collected from the UNCTAD.
In addition, we employ a cultural dimension, the extent to which a
given society is considered to be individualistic or collectivist
(Hofstede, 1983), as a third control variable (Individualism). Corporate
governance practices such as the use of independent directors on boards
have their origin in countries that score highly on the cultural dimen-
sion of individualism. Examples include the US and the UK, and in such
countries the purpose of corporate governance practices is to maximize
value for the individual investor and not for the collective of other
stakeholders (Aguilera & Jackson, 2003).
Model specification
Using STATA, we conducted the following estimation. Given the
linear regression: Y = β0 + β1X1 + … + β1Xn + ε, where Xi are en-
dogenous variables - government integrity (GovInt), economic devel-
opment (GDP), foreign direct investment inflows (FDI) and in-
dividualism, we first regress Xi on Z1 and Xi−1 to obtain Xi
Xi = y0 + y1 Z1 + …+ yn Zn + v (1)
where Zi represents instrumental variables. We then plug in the fitted
values of Xi derived from Eq. (1) into the original linear regression
equation to estimate Eq. (2):
Y (corpgov ) = 0 + 1 X1 + …+ 1 Xn + , (2)
where Y(corpgov) is represented by dependent variables (managerial
accountability to shareholders and the board, auditing and financial
reporting, protection of minority investors) and ν is a composite error
term, correlated with X1 … Xn .
As pointed out above, our regressors are potentially endogenous,
that is they may be systematically related to unobserved causes of the
dependent variable, in this case, corporate governance variables.
Violations of this sort commonly occur when factors related to in-
dependent variables, that predict outcome, are dropped in estimation or
when the independent variables themselves are measured with error
(Wooldridge, 2002). Of course, two-way causation is yet another con-
dition but not the only concern. For example, in the context of our
study, it is plausible that government integrity could determine cor-
porate governance practices as we hypothesize in this paper. However,
the reverse is also likely to be the case as corporate governance prac-
tices such as the quality of auditing and accounting reporting could
deter corrupt practices by government authorities. Moreover, within
our model, government integrity could be a predictor of economic de-
velopment. We thus used the 2SLS estimator, an instrumental variable
(IV) method which is useful to purge coefficients of endogeneity bias
(Baum, Schaffer, & Stillman, 2011) due to common methods, mea-
surement error or simultaneity (Antonakis, Bendahan, Jacquart, &
Lalive, 2010).
Instrumental variables
We identified instrumental variables for the four endogenous
6
The Leadership Quarterly 30 (2019) 101303
regressors in our model. We provide the rationale for each of the in-
struments we use in this study. We use legal origin as an instrumental
variable for government integrity. In previous studies, legal origins
have been used as instrumental variables for corruption (e.g.,
Fredriksson & Svensson, 2003; Pellegrini & Gerlagh, 2004). The vari-
able is a categorical variable indicating whether a country has French,
English, Scandinavian, German or Socialist legal origin. The justifica-
tion for using legal origins as an instrument is its relationship with
institutional efficiency as well as with the level of government inter-
vention. La Porta et al. (1999) argue that more interventionist gov-
ernments and less efficient bureaucracies should have higher levels of
corruption, and hence lower levels of government integrity. For ex-
ample, countries founded on English common law focus less on gov-
ernment intervention and place more emphasis on the protection of
individual rights and should therefore have lower levels of corruption.
La Porta et al. (1999) also argue that legal origins are exogenous to
economic variables or institutions because they are mainly determined
by historical factors (La Porta et al., 1999).
For the endogenous variable (GDP), we use four instrumental vari-
ables. Two of these are on fractionalization: linguistic and religious.
Linguistic and religious fractionalization measures are based on the
probability that two randomly drawn individuals (from a country) are
not from the same linguistic and religious group respectively. These
fractionalization variables, drawn from Alesina, Devleeschauer,
Easterly, Kurlat, and Wacziarg (2003), refer to the situation in the late
1980s and early 1990s. Scholars argue that highly fragmented countries
on the basis of both language and religion are more likely to have poor
economic development. For example, studies by Mauro (1995) and
Easterly and Levine (1997) offer econometric evidence showing that
greater levels of linguistic fractionalization hinder economic perfor-
mance. The fact that the data on fractionalization variables were col-
lected in the 1980s–1990s and the fact that the fragmentation of so-
cieties on the basis of language and religion cannot be changed by the
dynamics of corporate governance in recent years, suggest that the
averaged instrumental variables are exogenous.
We use an exogenous geographical feature of countries (latitude) as
a second instrument for economic development. Latitude, the distance
from the equator measured in absolute degrees, affects climate and,
therefore, aspects of agricultural productivity and disease. Previous
studies have shown that countries closer to the equator are less devel-
oped. Latitude has, therefore, considerable explanatory power for the
log of per capita GDP (Barro & McCleary, 2003), suggesting a positive
relationship between latitude and economic development. Latitude is
completely exogenous and can be used as an appropriate instrument as
it can be changed neither by economic development nor by any level of
shock from a disturbance.
We also employ the situation of whether a country is landlocked
(landlock) or not as an instrumental variable for economic development.
Collier (2008) argues that the landlocked status is one of the four key
factors preventing the poorest countries from growing and ripping the
benefits of globalization. Moreover, gravity models point to a strong
negative effect of landlockedness on bilateral trade (Coulibaly &
Fontagne, 2006; Limao & Venables, 2001). As such trading costs are
higher in landlocked countries thus constraining economic develop-
ment. The fact that a country is landlocked cannot be affected by eco-
nomic development, making it a good instrumental variable.
The third endogenous variable, foreign direct investment (FDI), is
instrumented by two measures of size: log population and log area.
First, large populations provide a large market for products and services
offered by multinational enterprises, have a large and cheaper labor
force and a vast skills base (Billington, 1999). Large land area is likely
to accommodate more foreign firms seeking to establish greenfield in-
vestment and potentially home to more resources that foreign firms
seek to exploit. Foreign direct investment does not impact on country
population, but the reverse, we argue, is true. Land area is finite,
making a good instrumental variable for foreign direct investment. We
A. Chizema and G. Pogrebna
source data on population and land area from the World Bank Database.
It is important for our model to justify the exogeneity of our in-
struments (population and area). While area is a geographical “hard”
characteristic of a country and is unlikely to be influenced by other
variables, the situation is not as straightforward for the population. For
example, one could argue that population variable is not exogenous
because it depends on FDI, that is, richer countries attract larger
numbers of migrants and, therefore, these countries are likely to have
higher FDI. Studies have found that FDI and migration often move in
the same direction (e.g., Clemens & Williamson, 2000; Groznik, 2003;
Lucas, 1990), however, several of these papers consider correlation
rather than causality. Kim (2006), for example, investigated the link
between migration, trade and FDI for the United States and concluded
that FDI and trade are substitutes, but both are led by migration, sug-
gesting that migration was an exogenous variable. Kugler and Rapoport
(2005) distinguished between skills and unskilled labor movements and
argued that skilled migrants positively influence FDI, but only in the
long run. In order to further test the exogeneity of the population in-
strument, we collected data on immigration for 93 countries in our
sample from the UN dataset2 as well as data on FDI for the same
countries from the UNCTAD World Investment Report.3 Considering
that the data on immigration was very fragmented after 2015, we
captured data for the relative change in FDI from 2011 to 2015 as well
as for the relative change in immigration for the same period in 79
countries in our dataset. We found that FDI decreased from 2011 to
2015 in 47 out of 79 countries. In 36 of these countries, migration also
decreased and in 11 of them FDI increased. In 32 out of 79 countries
FDI increased from 2011 to 2015 and in 26 out of 32 countries, mi-
gration declined whereas in 6 of them it increased. Fisher's exact test
comparing countries with increased and decreased migration levels
showed no statistically significant difference (Fisher's exact test
p = 0.782). This provides additional support for our assumption of
exogeneity of the population variable.
For the fourth endogenous variable (individualism) we use a dummy
variable of whether a country's primary language permits speakers to
drop a personal pronoun (pronoundrop) when it is used as the subject of
a sentence. In some languages, for example Spanish, pronoun drop is
permitted. For example, the English sentence “I speak” may be trans-
lated into Spanish either as “Yo ablo” or simply as “Ablo” (Davis &
Abdurazokzoda, 2016). In contrast, pronoun drop is not permitted in
other languages such as English, as the pronoun “I” is required to make
sense of the sentence. In such languages, the use of “I” signals that the
person is highlighted as a figure against the speech context and its
absence reduces the prominence of the speaker's person. As such the
emphasis on the pronominal subject, especially I or you, in languages in
which pronoun drop is not permitted is expected to be associated with
cultural individualism (Davis & Abdurazokzoda, 2016; Kashima &
Kashima, 1998). In contrast, the greater contextualization of the subject
in languages that permit pronoun drop is expected to be associated with
more collectivist cultures.
Data on pronoun drop is based on an authoritative source of lin-
guistic information, the World Atlas of Language Structures (WALS) and
has been used in previous studies (e.g., Davis & Abdurazokzoda, 2016;
Kashima & Kashima, 1998).
Results of the field study
Tables 1a and 1b show the correlations, means and standard de-
viations of the variables used in this study, including dependent, in-
dependent, control and instrumental. As expected, correlations among
2
See https://www.un.org/en/development/desa/population/migration/
data/index.asp for more detail.
3
See https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid
=2460 for more detail.
7
The Leadership Quarterly 30 (2019) 101303
the set of dependent variables are high. All other correlations are
modest.
As explained above, we tested our hypothesis using ivregress of
STATA to obtain 2SLS estimates. As suggested by several scholars (e.g.,
Antonakis et al., 2010; Larcker & Rusticus, 2010), we report both the
OLS (see Table 2) and the 2SLS results (see Table 3). First, Table 3
shows OLS results.
From our OLS results, as shown in Table 2, the coefficients for the
effect of government integrity on managerial accountability to share-
holders and the board (β = 0.02, p = 0.000), auditing and accounting
reporting (β = 0.02, p = 0.000), protection of minority interest
(β = 0.03, p = 0.000) and on the overall corporate governance index
(β = 0.02, p = 0.000) are as predicted.
Table 3 shows results for 2SLS tests. Joint tests including all en-
dogenous regressors and their respective instruments provide a better
explanation for the state of variables and for the suitability of their
instruments. Starting with the instruments for the variable, government
integrity, the coefficients on legal origins are significant and positive, as
shown in Table 3, Model 1. Specifically, relative to the Socialist legal
origin (dropped in the estimation), the coefficients for the rest of the
legal origins are positive and significant: British (β = 11.22,
p = 0.063), French (β = 8.97, p = 0.014), German (β = 22.97,
p = 0.000), and Scandinavian (β = 25.93, p = 0.001).
Coefficients of two instrumental variables used for the endogenous
variable economic development are significant, as shown in Table 3,
Model 2. Specifically, linguistic fractionalization (β = −0.73,
p = 0.001) is negative and significant and as expected, latitude is po-
sitive and significant (β = 0.01, p = 0.030). From the two instrumental
variables used for foreign direct investment (FDI), the size of a country's
population is positive and significant (β = 0.10, p = 0.025).
Finally, as stated earlier, we considered whether the dominant
country language allows pronoun drop or not, where languages that
allow pronoun drop are collectivist. The coefficient for the instrumental
variable, pronoundrop (β = −0.20.49, p = 0.000) is positive and sig-
nificant (as shown in Table 3, Model 4), suggesting that countries
whose languages drop the pronoun ‘I' are not individualistic.
We also carried out post-estimation tests to ascertain the strength of
the first stage statistics, at equation level. The results, as shown in
Table 3, show that that the employed instrumental variables are strong:
Model 1 [F(11, 81) = 18.71, p = 0.000], Model 2 [F(11, 81) = 24.07,
p = 0.000], Model 3 [F(11, 81) = 18.85, p = 0.000], Model 4 [F(11,
81) = 19.62, p = 0.000].
We also used Reg3 of Stata to determine the strength of instruments
used for each of the endogenous variables: [F(4, 89) = 6.56, p = 0.000]
for the instruments of GovInt, [F(4, 89) = 13.10, p = 0.000] for GDP,
[F(2, 91) = 8.23, p = 0.000] for FDI and [F(1, 92) = 42.22, p = 0.000]
for individualism.
We turn to results for the full models or joint tests, that is, in the
second stage of the 2SLS shown in Table 3. First, contrasting the results
of the second-stage regression with OLS estimation, the Wu-Hausman
test, for the full models, rejects the null that there is no endogeneity
problem with OLS estimation for Model 5 [χ2(4) = 5.26, p = 0.001],
Model 6 [χ2(4) = 5.27, p = 0.001], Model 7 [χ2(4) = 6.60,
p = 0.000] and Model 8 [χ2(4) = 7.08, p = 0.000]. These results
suggest that all the regressors are endogenous, suggesting that 2SLS
estimation is preferred to the OLS estimation.
Second, we examined the exclusion restriction (over-identification
restriction) of the 2SLS model to ensure that the excluded instruments
from the equation do not correlate with the disturbance of the depen-
dent variable. The null hypothesis for the overidentification test is that
the instruments are exogenous, in other words, uncorrelated with the
error term. Thus, if the test statistic is insignificant, we fail to reject the
null hypothesis. The over-identification Sargan test results are as fol-
lows: for Model 5 [χ2(6) = 5.64, p = 0.582], Model 6 [χ2(6) = 5.74,
p = 0.570], Model 7 [χ2(6) = 12.36, p = 0.089] and Model 8
[χ2(6) = 7.25, p = 0.404]. These results indicate that the model
A. Chizema and G. Pogrebna The Leadership Quarterly 30 (2019) 101303

Table 1a
Field study means, standard deviations and correlations (part 1).
Variable Mean SD 1 2 3 4 5 6 7 8 9

1 ManAcc 4.94 0.63

2 AuditRep 4.92 0.78 0.89⁎⁎⁎
3 MinIntrst 4.33 0.73 0.83⁎⁎⁎ 0.90⁎⁎⁎
4 CGI 4.73 0.68 0.94⁎⁎⁎ 0.97⁎⁎⁎ 0.95⁎⁎⁎
5 GovInt 50.25 20.99 0.77⁎⁎⁎ 0.78⁎⁎⁎ 0.75⁎⁎⁎ 0.80⁎⁎⁎
6 GDP 9.23 1.36 0.62⁎⁎⁎ 0.70⁎⁎⁎ 0.57⁎⁎⁎ 0.66⁎⁎⁎ 0.79⁎⁎⁎
7 FDI 2.88 0.24 −0.40⁎⁎ −0.38⁎⁎ −0.31⁎⁎ −0.38⁎⁎ −0.41⁎⁎⁎ −0.35⁎⁎⁎
8 Individualism 39.84 22.40 0.57⁎⁎⁎ 0.57⁎⁎⁎ 0.50⁎⁎ 0.57⁎⁎⁎ 0.63⁎⁎⁎ 0.60⁎⁎⁎ −0.36⁎⁎⁎
9 legor_uk 0.32 0.47 0.12 0.11 0.26⁎⁎ 0.17 −0.08 −0.21⁎ 0.10 0.01
10 legor_fr 0.44 0.50 −0.27⁎⁎ −0.32⁎ −0.34⁎⁎ −0.33⁎⁎ −0.26⁎⁎ −0.11 0.06 −0.25⁎⁎ −0.61⁎⁎⁎
11 legor_ge 0.17 0.38 0.01 0.12 −0.04 0.04 0.22 0.24⁎⁎ −0.07 0.16 −0.31⁎⁎
12 legor_sc 0.05 0.23 0.36⁎⁎⁎ 0.32⁎⁎ 0.37⁎⁎ 0.36⁎⁎⁎ 0.39⁎⁎⁎ 0.31⁎⁎ −0.24⁎⁎ 0.29⁎⁎ −0.16
13 legor_so 0.01 0.10 −0.11 −0.12 −0.20 −0.15 −0.06 −0.04 0.06 −0.07 −0.07
14 Ling-fractional 0.33 0.20 0.03 −0.06 0.06 0.01 −0.19⁎ −0.43⁎⁎ 0.10 −0.08 0.38⁎⁎⁎
15 Relig-fractional 0.43 0.24 −0.12 0.14 0.14 0.14 0.03 −0.08 −0.07 0.14 0.39⁎⁎⁎
16 Latitude 24.43 26.66 0.12⁎ 0.12 0.05 0.10 0.36⁎⁎⁎ 0.45⁎⁎⁎ −0.19⁎ 0.40⁎⁎⁎ −0.36⁎⁎⁎
17 Landlock 0.11 0.31 0.05 0.08 0.02 0.05 −0.02 −0.08 −0.06 0.15 −0.02
18 LnArea 12.20 2.04 −0.10 −0.21⁎ −0.11 −0.15 −0.20 −0.24⁎ 0.28⁎⁎ 0.04 0.08
19 LnPopul 7.21 0.70 −0.27⁎⁎ −0.32⁎⁎ −0.21 −0.28⁎⁎ −0.32⁎⁎ −0.36⁎⁎⁎ 0.39⁎⁎⁎ −0.10 0.14
20 pronoundrop 0.70 0.45 −0.59⁎⁎ 0.45⁎⁎ −0.46⁎ −0.51⁎⁎ −0.52⁎⁎ −0.41⁎⁎ 0.32⁎⁎ −0.56⁎⁎⁎ −0.14

Notes: N = 93.
⁎⁎⁎
p < 0.001.
⁎⁎
p < 0.01.
⁎
p < 0.05.

Table 1b
Field study means, standard deviations and correlations (part 2).
Variable Mean SD 10 11 12 13 14 15 16 17 18 19

1 ManAcc 4.94 0.63

2 AuditRep 4.92 0.78
3 MinIntrst 4.33 0.73
4 CGI 4.73 0.68
5 GovInt 50.25 20.99
6 GDP 9.23 1.36
7 FDI 2.88 0.24
8 Individualism 39.84 22.40
9 legor_uk 0.32 0.47
10 legor_fr 0.44 0.50
11 legor_ge 0.17 0.38 −0.40⁎⁎⁎
12 legor_sc 0.05 0.23 −0.21⁎ −0.11
13 legor_so 0.01 0.10 −0.09 −0.05 −0.02
14 Ling-fractional 0.33 0.20 −0.13⁎ −0.15 −0.18⁎ −0.12
15 Relig-fractional 0.43 0.24 −0.40⁎⁎ 0.20 −0.20 −0.18 0.36⁎⁎⁎
16 Latitude 24.43 26.66 −0.10 0.36⁎⁎⁎ 0.33⁎⁎ 0.08 −0.28⁎⁎ −0.27⁎⁎
17 Landlock 0.11 0.31 −0.17 0.30⁎⁎ −0.08 −0.04 0.17 0.21 0.01
18 LnArea 12.20 2.04 0.04 −0.13 −0.01 −0.03 0.19⁎ 0.05 −0.23⁎⁎ −0.11
19 LnPopul 7.21 0.70 0.09 −0.13 −0.24 −0.05 0.19⁎ 0.03 −0.14 −0.13 0.37⁎⁎⁎
20 pronoundrop 0.70 0.45 0.25⁎⁎ 0.05 −0.37⁎⁎⁎ 0.07 −0.07 −0.23⁎ −0.25⁎⁎ −0.00 −0.02 0.13

Notes: N = 93.
⁎⁎⁎
p < 0.001.
⁎⁎
p < 0.01.
⁎
p < 0.05.

constraints were tenable, suggesting that the instruments are jointly
exogenous.4
Our central hypothesis is that corporate leadership in a given con-
text of government integrity will positively impact on national corpo-
rate governance practices. Compared to the OLS estimates, discussed
above, coefficients from 2SLS trend in the same direction, however,
they are larger. For example, in Hypothesis 1, we proposed that gov-
ernment integrity, as a contextual leadership factor, will positively
impact on managerial accountability to shareholders and the board.
4 in Model 7 (β = 0.05, p = 0.000).
Note that Model 7 returns probability of 0.089. However, this suggests that
test results are only marginally significant at 10% level when we use protection
of minority investors as a dependent variable.
There is support for this hypothesis in our results as shown in Model 5
(β = 0.03, p = 0.004).
In Hypothesis 2, we proposed that government integrity, as a con-
textual leadership factor, will positively impact on auditing and ac-
counting reports. As predicted, government integrity has a positive and
significant impact on auditing and accounting reports as shown in
Model 6 (β = 0.04, p = 0.003).
In Hypothesis 3, we proposed that government integrity, as a con-
textual leadership factor, will positively impact on the protection of
minority interests. As we predicted, government integrity has a positive
and significant impact on the protection of minority interests as shown
In Hypothesis 4, we proposed that government integrity, as a con-
textual leadership factor, will positively impact on overall corporate

8
A. Chizema and G. Pogrebna The Leadership Quarterly 30 (2019) 101303

Table 2 significant coefficient as an indication of the causal effect of the context

OLS results of the effects of government integrity on corporate governance. of government integrity on leaders' corporate governance practices.
Model 1 2 3 4 Another finding worth mentioning is that from one of the control
variables, specifically, the economic development. This is because from
ManAcc AudRep MinIntst CGIndex 2SLS results, the impact of economic development on managerial ac-
countability to shareholders and the board, on protection of minority
Constant 4.49 ⁎⁎⁎
3.38⁎⁎⁎
3.20⁎⁎⁎
3.69⁎⁎⁎
(0.69) (0.83) (0.84) (0.71) investors and on the overall corporate governance index suggest that
GovInt 0.02⁎⁎⁎ 0.02⁎⁎⁎ 0.03⁎⁎⁎ 0.02⁎⁎⁎ when countries are doing well economically, less attention is given to
(0.00) (0.00) (0.00) (0.00) corporate governance. This probably explains why corporate govern-
GDP −0.03⁎ 0.23⁎⁎ −0.09 0.03 ance is considered to be cyclical as calls for improved corporate gov-
(0.11) (0.14) (0.14) (0.12)
ernance tend to take place when performance by firms and countries is
FDI −0.21+ −0.17 0.01 −0.12
(0.19) (0.23) (0.24) (0.20) poor or following corporate scandals (Clarke, 2017).
Individualism 0.00 0.00 0.00 0.00
(0.00) (0.00) (0.00) (0.00)
Adj R2 0.60 0.61 0.55 0.64 Laboratory study: experimental design and hypotheses
F-statistic 35.41⁎⁎⁎ 37.29⁎⁎⁎ 29.25⁎⁎⁎ 41.29⁎⁎⁎
Our field study suggests that, at the macro level, government in-
Notes: N = 93. Robust standard errors in parentheses.
+ tegrity impacts on corporate governance decisions. Yet, further ex-
Significant at 0.10 level.
ploration is needed to clearly show the link between the macro level
⁎
Significant at 0.05 level.
⁎⁎
Significant at 0.01 level. contextual impact of government integrity on the leader's decision
⁎⁎⁎
Significant at 0.001 level. making or choices at the micro level. To achieve this, we utilize the
methodology of laboratory experiments. Specifically, we design a series
governance practices. As we predicted, government integrity has a of experimental treatments, where we vary the social norm about cor-
positive and significant impact on corporate governance index as shown porate governance (corporate governance norm variable), the level of
in Model 8 (β = 0.04, p = 0.001).5 corruption in the state (government integrity variable), the strength of
law enforcement mechanisms (law enforcement variable), as well as the
level of profit which could be achieved from corporate activity (profit
Discussion of field results level variable). In our design, each variable may take only 2 values,
therefore, we have 16 treatment variations in total.
The results of the field study offer support to the tested hypotheses. In each variation, participants are assigned to groups of 3 people
The results suggest that countries with higher levels of government each. A randomization process assigns the CEO role to one of the par-
integrity, characterized by less corruption, are perceived to have better ticipants and the roles of employees to 2 of the participants.6 Each
corporate governance practices. First, and specifically, we found a group of participants is asked to perform a simple experimental task. In
significant causal relationship such that higher levels of government this experimental task, the group receives an endowment of £9. The
integrity positively impact on managerial accountability to share- CEO then has an opportunity to invest the money into a risky business
holders and the board. This finding points to the exemplary guidance activity or to keep the endowment. If the CEO decides to keep the en-
that good national governance provides to corporate leaders either dowment, each group participant receives £3. The group has an op-
through the presence of effective formal institutions of the government portunity to earn more money if the CEO decides to invest in a risky
(North, 1990) or simply by way of conforming to what may be seen as business activity. The exact amount of money at stake is determined by
normal national behavior (Scott, 2001). the value of the profit level variable. To maximize the number of ob-
Second, we found a significant causal relationship such that higher servations, we use a strategy method, asking all participants to make
levels of government integrity positively impact on the strength of audit their decisions “as if” they played the role of the CEO. After all decisions
and accounting reports. This finding helps to explain the heterogeneity are made, the computer program determines the CEO in each group and
of auditing and accounting reporting across the world even in instances calculates the payoff for each player.
where countries adopted similar international accounting standards. Half of the variations (8 of 16) represent our baseline in the sense
Thus, while countries may be using similar accounting standards (e.g. that we do not use the corporate governance norm in those variations.
International Accounting Standards-IAS), however, the quality of their In the other half of variations (8 of 16), the norm (e.g., Bendahan,
application differs as a function of contextual factors, where govern- Zehnder, Pralong, & Antonakis, 2015) is first elicited and informed to
ment integrity is one of them. Previous studies have noted a variety of the participants. To elicit the norm, we used the following two ques-
contextual factors including legal, social and economic factors and at- tions:
tention has not been given to the causal impact of government integrity.
Third, we found a significant and causal relationship such that (1) Do you think it is acceptable for a CEO not to pay taxes? Yes No
higher levels of government integrity positively impact on the protec- (2) Do you think it is acceptable for a CEO to pay bribes? Yes No
tion of minority investors. This finding is consistent with earlier re-
search on the determinants of minority shareholders' protection (La In each experimental session, in variations where the norm was
Porta et al., 1999). More importantly, our findings provide an ex- used, participants answered these two questions and results from their
planation on the condition that allows exploitation of minority in- responses (total percentage of “Yes” and “No” answers in an experi-
vestors by majority shareholders beyond that made on emerging mar- mental session) were reported to all the participants. In other words, in
kets (Young et al., 2008). The three findings discussed above are these variations, we imposed a demand effect (Welsh & Ordonez, 2014)
summarized in our fourth hypothesis that similarly yields a positive and which enhanced the corporate governance norm (henceforth, the norm-
enhancing demand effect) (e.g., Bendahan et al., 2015). This norm-
5
We conducted a robustness check to ascertain the effect of regions in our
6
estimations. The countries in the sample were classified under the following Because we are primarily interested in the link between corporate govern-
regions: Africa, Asia, Middle East, South America, North America, Eastern ance, government integrity and leaders' decision making, for simplicity, we
Europe and Rest of Europe. Results from these tests (not included) are not concentrate on a case when leaders are appointed (exogenous assignment of
significantly different from those reported in Table 3. CEOs) rather than voted (endogenous assignment of CEOs).

9
A. Chizema and G. Pogrebna The Leadership Quarterly 30 (2019) 101303

Table 3
2SLS results of the effect of government integrity on corporate governance.
Model 1 2 3 4 5 6 7 8 Shea's R2

1st stage 1st stage 1st stage 1st stage 2nd stage 2nd stage 2nd stage 2nd stage

GovInt GDP FDI Individual ManAcc AudRep MinIntst CGIndex

Constant 91.56⁎⁎⁎ 5.46⁎⁎⁎ 2.15⁎⁎⁎ 32.71 9.32⁎⁎⁎ 8.73⁎ 7.75⁎ 8.60⁎⁎

(20.06) (0.56) (0.25) (23.70) (2.92) (3.50) (3.47) (3.08)
GovInt 0.03⁎⁎ 0.04⁎⁎ 0.05⁎⁎⁎ 0.04⁎⁎⁎ 0.154
(0.01) (0.01) (0.01) (0.01)
GDP −0.75⁎⁎ −0.63⁎ −1.04⁎⁎⁎ −0.81⁎⁎ 0.285
(0.27) (0.33) (0.32) (0.29)
FDI −1.18 −1.16 −0.65 −0.99 0.087
(0.84) (1.01) (1.00) (0.89)
Individualism 0.01 −0.00 0.00 0.00 0.270
(0.01) (0.01) (0.01) (−0.01)
+
Legor_uk 11.22 0.53 ⁎⁎⁎
−0.08 14.85 ⁎

(5.94) (0.19) (0.06) (6.17)

Legor_fr 8.97⁎ 0.52⁎⁎⁎ −0.013+ 10.98⁎
(3.56) (0.11) (0.07) (4.58)
Legor_ge 22.97⁎⁎⁎ 0.73⁎⁎⁎ −0.10 11.14+
(5.92) (0.17) (0.06) (6.38)
Legor_sc 25.94⁎⁎⁎ 0.48⁎⁎ −0.19⁎⁎ 12.95+
(7.16) (0.18) (0.06) (7.43)
Lingui-fractional −6.96 −0.73⁎⁎⁎ 0.03 −9.91
(6.92) (0.21) (0.08) (8.14)
Relig-fractional −3.32 −0.01 −0.10 9.67
(9.40) (0.28) (0.09) (9.82)
Latitude 0.04 0.01⁎ −0.00 0.29⁎
(0.11) (0.00) (0.00) (0.12)
Landlock −5.67 −0.19 −0.01 10.92⁎
(4.84) (0.17) (0.06) (5.00)
LnArea −0.64 0.02 0.01 2.59+
(1.89) (0.04) (0.01) (1.47)
LnPopul −4.01 −0.26⁎ 0.10⁎ −4.37
(4.33) (0.11) (0.04) (3.91)
pronoundrop −20.17⁎⁎⁎ −0.47⁎⁎ 0.12⁎⁎⁎ −20.49⁎⁎⁎
(5.08) (0.15) (0.04) (5.88)
R2 0.44 0.52 0.25 0.45 0.33 0.37 0.29 0.36
Hausman χ2(4) 5.26 5.27 6.60 7.08
p = 0.001 p = 0.001 p = 0.000 p = 0.000
Sargan χ2(7) 5.64 p = 0.582 5.74 12.36 7.25
p = 0.570 p = 0.089 p = 0.404
F-stat (F(11, 81)) 18.94⁎⁎⁎ 24.07⁎⁎⁎ 18.85⁎⁎⁎ 19.62⁎⁎⁎

Notes: N = 93. Robust standard errors in parentheses.

+
Significant at 0.10 level.
⁎
Significant at 0.05 level.
⁎⁎
Significant at 0.01 level.
⁎⁎⁎
Significant at 0.001 level.

enhancing demand effect allows us to test whether and to what extent
the behavior of the study participants depends on what the social norm
suggests as “acceptable” or the “right” course of action. It intends to
mimic socially admissible practices, giving us an opportunity to test
whether corporate decision making is affected by norms that are im-
posed by society. In the treatment variations with norm, in order to give
participants an opportunity to express their thoughts about the social
norm for corporate governance in a less structured way, we also asked
them an additional question:
(3) Please, provide 3 keywords (adjectives) which, in your opinion, describe
a “good” CEO.
The outcome of this question was not displayed to participants. We
used participants' answers to this question to understand the com-
monality and divergence of views among participants about desirable
CEO traits that impact on our measure of the corporate governance
norm and we analyzed these answers separately.
As explained above, in variations with and without the norm, we
also varied the profit level variable, the law enforcement variable, and
the government integrity variable. The profit level variable determined
whether participants played in the Rich condition or in the Poor con-
dition. In the Rich condition, investment of £9 in a risky business ac-
tivity yielded £46 with a probability of 2/3 and £9 with a probability of
1/3. In the Poor condition, investment of £9 in a risky business activity
yielded £19 with a probability of 2/3 and £9 with a probability of 1/3.7
In both conditions, if the group earns £9, the group payoff is reported to
all participants and split equally (£3 each). In the Rich condition, if the
group earns £46, the CEO has the following action space:
(i) The CEO may report the entire profit to the group and pay full tax
in which case:
• The CEO receives £40 before taxes are paid and £16 after taxes
are paid (the amount of tax is £24 which is then split between the
employees);
7
Probabilities of 1/3 and 2/3 were used to minimize the effect of human
probability weighting. According to Tversky and Kahneman (1992), humans
tend to overestimate small probabilities and underestimate large probabilities,
in other words, they have an inverse S-shaped probability weighting function.
This inverse S-shaped probability weighting function crosses the 45-degree line
at 1/3 (the point where probability weighting is minimal).

10
A. Chizema and G. Pogrebna
• Employees receive £3 each before taxes are paid and £15 after
the taxes are paid (each employee receives additional £12 of
redistributed wealth).
(ii) Alternatively, the CEO may report partial profit and cheat on taxes
in which case:
•
The CEO receives £40;
•
Employees receive £3 each.
In the Poor condition, if the group earns £19, the CEO has the fol-
lowing action space:
(i) The CEO may report the entire profit to the group and pay full tax
in which case:
•
The CEO receives £13 before taxes are paid and £7 after taxes are
paid (the amount of tax is £6 which is then split between the
employees);
•
Employees receive £3 each before taxes are paid and £6 after
taxes are paid (each employee receives additional £3 of redis-
tributed wealth).
(ii) Report partial profit and cheat on taxes in which case:
• The CEO receives £13;
• Employees receive £3 each.
For simplicity, we assume that the CEO can either be completely
honest or completely dishonest, a condition for our integrity task de-
scribed above. Therefore, in both the Rich condition and the Poor
condition, the CEO can either behave honestly (by selecting options (i)
or dishonestly (by choosing options (ii)). In other words, our experi-
mental task closely mimics a corporate responsibility dilemma in which a
CEO can either pay or evade taxes and, in some experimental varia-
tions, can either pay on not pay bribes.
A law enforcement mechanism is tested using two conditions: Low
enforcement and High enforcement. In the Low enforcement condition,
the integrity of the CEO is controlled 1/3 of the time, while in the High
enforcement condition, the integrity of the CEO is controlled 2/3 of the
time.8 When the integrity of the CEO is controlled, the CEO is fined his
or her entire payoff if he or she behaves dishonestly, in which case the
payoff of the CEO is divided equally between the remaining two par-
ticipants in the group. There is no implication from law enforcement
when the CEO behaves honestly.
The level of government integrity is tested using two conditions:
Corrupt government and Transparent government. If the government is
Transparent, then the law enforcement mechanism is applied as de-
scribed above. If the government is corrupt, the CEO has an opportunity
to completely avoid controls (checks) if he or she pays ¼ of his or her
payoff as a bribe (£10 in the Rich condition and £3 in the Poor con-
dition9). We assume that if the CEO decides to hide the profit and pay
the bribe, he or she would not be checked and would avoid the fine with
a probability of 100%. Yet, in this case, in the Rich condition the CEO
will receive £30 and in the Poor condition, the CEO will receive £10.
Because in the experimental task only 2 out of 3 situations could
result in a higher outcome of the investment for the group and lead to
“dishonest” behavior or “cheating” (i.e., in our design, tax evasion), we
used the strategy method (e.g., Fischbacher, Gächter, & Quercia, 2012)
to elicit decision reactions of the CEOs and then applied those decisions
when randomization procedure selected the higher outcome of the two
with a probability of 2/3.
Our experimental design allows us to test the following hypotheses:
Hypothesis 5. The endogenous social corporate governance norm
impacts on corporate leaders' behavior such that if the norm suggests
8
As explained above, we use probabilities of 1/3 and 2/3 to avoid potential
effects of probability weighting (see Tversky & Kahneman, 1992).
9
In the Poor condition, ¼ of the dishonest CEO payoff is equal to £13/
4 = £3.25. For simplicity, we round this amount to £3.
11
The Leadership Quarterly 30 (2019) 101303
that CEOs should be honest, then they are more likely to behave
honestly and if the norm suggests that it is acceptable for CEOs to be
dishonest, then they are more likely to behave dishonestly.
Hypothesis 6. Government integrity impacts on corporate leaders'
behavior such that in a Transparent government context, CEOs are
more likely to behave honestly, whereas in a Corrupt government
context they are more likely to behave dishonestly.
Hypothesis 7. Law enforcement impacts on corporate leaders' behavior
such that in a High law enforcement context, CEOs are more likely to
behave honestly, whereas in a Low law enforcement context they are
more likely to behave dishonestly.
Hypothesis 8. The size of corporate profits impacts on corporate
leaders' behavior such that in a Poor condition, CEOs are more likely
to behave honestly, while in a Rich condition they are more likely to
behave dishonestly.
Experimental results
As explained above, we conducted 16 variations of the experiment
(summarized in Fig. 1). Overall, 576 individuals took part in our ex-
periment: 36 people (2 sessions 18 people each) participated in each
experimental treatment variation. All experimental participants were
students at the University of Warwick. Participants of all races, ethnic
origins, genders, ages, income groups and different university majors
were invited to take part in the experiment. Overall, of 576 partici-
pants, 47% were female and 53% were male. Across all variations, the
percentage of female participants ranged between 42% and 55%
(Kruskal-Wallis equality-of-populations test revealed no statistically
significant difference across variations according to the gender com-
position (χ2 = 3.44, p = 0.99, df10 = 15). The average age of partici-
pants was 21 years and the standard deviation is 1.07 (Kruskal-Wallis
equality-of-populations test revealed no statistically significant differ-
ence across variations according to the age composition (χ2 = 10.38,
p = 0.80, df = 15). Experiments were conducted in the laboratory
using the z-Tree software (Fischbacher, 2007). Slightly over 1/2 of
participants (54%) were native speakers of English. The number of
native speakers was similar across all 16 variations (Kruskal-Wallis test
χ2 = 7.58, p = 0.94, df = 15).
Irrespective of the context, in all the 8 variations where we used the
norm-enhancing demand effect, over 94% of participants (on average,
98% across all 8 variations) said that it was not acceptable for the CEO
to evade taxes (results of the Kruskal-Wallis test of the equity of po-
pulations suggests that there is no statistical difference across 8 varia-
tions with the norm-enhancing demand effect according to this variable
(Kruskal-Wallis test χ2 = 6.29, p = 0.51, df = 7) and over 97% of
participants (on average, 99% across 8 variations) said that it was not
acceptable to pay bribes (results of the Kruskal-Wallis test also did not
reveal statistically significant differences across treatments χ2 = 6.02,
p = 0.54, df = 7). In other words, in all the 8 variations with the norm-
enhancing demand effect, the corporate governance norm commu-
nicated to all participants was that the majority of participants believed
that it was not acceptable for the CEO not to pay taxes and that it was
not acceptable for the CEO to pay bribes. Therefore, in each variation
with the norm-enhancing demand effect, participants received a nudge
which suggested that leaders' integrity is important and that leaders
should behave honestly.
To explore the impact of this norm on leaders' decision making in
our experiment, we calculated the total number of times when CEOs
decided to hide the profit and evade taxes across all 16 treatment
variations. In other words, we calculated the number of times when
CEOs “cheated” or decided to behave dishonestly. Results of these
10
df stands for degrees of freedom.
A. Chizema and G. Pogrebna
Fig. 1. Experimental treatment variations.
Notes: No norm = demand effect enhancing endogenous social norm was not used; Norm = demand effect enhancing endogenous social norm was used.
calculations are presented in Fig. 2. As pointed out earlier, in our ex-
periment, “cheating” refers to the decision to hide part of a CEO's payoff
and evade taxes, which could be observed in all treatment variations.
Decisions to resort to bribery are considered separately for variations
where the government integrity is set to be low (Corrupt government
conditions).
As all participants decided to invest in a risky business activity ra-
ther than share the £9 equally among all group members, when we
asked them to make decisions as if they were CEOs using the strategy
method, we had 36 observations in each experimental variation. Each
bar in Fig. 2 presents the frequency of cheating (number of times when
CEOs decided to cheat relative to the total number of decisions made) in
a particular variation of the experiment.
According to Fig. 2, the corporate governance norm is correlated
with leaders' propensity to behave honestly. In all variations with the
norm-enhancing demand effect, the norm was “positive” in the sense
that the overwhelming majority of participants believed that the in-
tegrity of CEOs' was important and that CEOs should behave honestly.
We, therefore, did not have an opportunity to test the reverse norm.
12
The Leadership Quarterly 30 (2019) 101303
Fig. 2 shows that in variations with the norm-enhancing demand
effect cheating is a lot less frequent than in variations without the norm-
enhancing demand effect. Specifically, in variations without the norm-
enhancing demand effect, 95 out of 288 decisions (33%) were dis-
honest, whereas in variations with the norm-enhancing demand effect,
only 56 out of 288 decisions (19%) were dishonest. The difference
between these two conditions is highly statistically significant (Fisher's
exact test p = 0.001).
Government integrity is also a significant determinant of leaders'
decision making. Specifically, in variations with a Transparent gov-
ernment, 34 of 288 (12%) of decisions are dishonest, while in variations
with a Corrupt government, 117 of 288 (41%) of decisions are dis-
honest. The difference between decisions made in Transparent condi-
tions and those made in Corrupt conditions is highly statistically sig-
nificant (Fisher's exact test p = 0.001).
In our experiment, CEOs tend to cheat more in Low enforcement
(105 of 288 cases, 36%) than in High enforcement variations (46 of 288
cases, 16%). This difference is highly statistically significant (Fisher's
exact test p = 0.001). They also cheat more in variations with Rich (96
A. Chizema and G. Pogrebna
Rich Corrupt
0.83
0.58
0.44
0.25
0.14
LOW ENFORCEMENT HIGH ENFORCEMENT
NO NORM
Fig. 2. Experimental Summary statistics: cheating frequency by treatment variation.
Notes: Cheating frequency is shown on the vertical axis.
No norm = demand effect enhancing endogenous social norm was not used;
Norm = demand effect enhancing endogenous social norm was used.
of 288 cases, 33%) rather than Poor (55 of 288 cases, 19%) incentive
conditions (Fisher's exact test p = 0.001).
At first sight, it may seem that Hypotheses 5–8 are confirmed,
however, the picture is different when comparisons of individual var-
iations are made. We first consider experimental variations where all
treatment variables, apart from the norm, are held the same. Specifi-
cally, in the Rich, Corrupt government, Low enforcement conditions,
the variation with norm has a count of 30 (83%) dishonest decisions,
whereas in the variation without the norm the count is 19 (53%). This
difference is significant according to the Fisher's exact test (p = 0.005).
Similar results are observed for Rich, Corrupt government, High en-
forcement conditions, where the cheating count is 16 (44%) for “No
norm” variation and 8 (22%) for the “With Norm” variation (Fisher's
exact test, p = 0.040). This result is also observed in variations with
Poor, Corrupt government conditions. Specifically, cheating is more
prevalent in Poor, Corrupt government, Low enforcement variation
without the norm-enhancing demand effect (21 cases of cheating,
58%), than in Poor, Corrupt government, Low enforcement variation
with the norm-enhancing demand effect (12 cases of cheating, 33%).
This difference is statistically significant (Fisher's exact test, p = 0.029).
In the variation with Poor, Corrupt government, High enforcement and
without the norm-enhancing demand effect, CEOs cheated 8 times
(22%); whereas in the variation with Poor, Corrupt government, High
enforcement and the norm-enhancing demand effect, CEOs cheated
only 3 times (8%). This difference is marginally statistically sig-
nificant11 (Fisher's exact test, p = 0.094).
While the difference between “No norm” and “With norm” condi-
tions is statistically significant in all treatment variations with a Corrupt
government, when we consider variations with a Transparent govern-
ment, we do not observe results that are statistically significant.
Specifically, in Rich, Transparent government, Low enforcement var-
iations without the norm-enhancing demand effect (9 cheating cases,
11
It is significant at 10% rather than 5% level.
The Leadership Quarterly 30 (2019) 101303
Rich Transparent Poor Corrupt Poor Transparent
0.53
0.33
0.22
0.22
0.17
0.11
0.11
0.08
0.08
0.06
0.03
LOW ENFORCEMENT HIGH ENFORCEMENT
NORM
25%) and with the norm-enhancing demand effect (6 cheating cases,
17%) the difference in CEO behavior is not statistically significant
(Fisher's exact test = 0.280). In Rich, Transparent government, High
enforcement variation without the norm-enhancing demand effect,
CEOs tend to cheat exactly the same number of times (4 cases, 11%) as
in Rich, Transparent government, High enforcement variation with the
norm-enhancing demand effect (4 cases, 11%). Similarly, in Poor,
Transparent government, Low enforcement variations without (5 cases,
14%) and with (3 cases, 8%) the norm-enhancing demand effect the
frequency of cheating is very similar (Fisher's exact test = 0.36). We
obtain the same result in Poor, Transparent government, High en-
forcement variations without (2 cases, 5%) and with (1 case, 3%) the
norm-enhancing demand effect (Fisher's exact test, p = 0.500).
Therefore, Hypothesis 5 is only partially confirmed as social norm
about corporate governance is an important determinant of leaders'
decisions only in variations with a Corrupt government condition (in
variations with the norm-enhancing demand effect cheating frequency
is lower than that in variations without the norm-enhancing demand
effect), whereas in variations with a Transparent government condition
the level of cheating is low in all variations and the impact of the norm-
enhancing demand effect is not statistically significant.
Similar results are obtained for Low and High enforcement condi-
tions. When government integrity is low (Corrupt government),
cheating is observed more frequently in the Low enforcement condition
rather than High enforcement condition. Yet, when the government is
Transparent, the level of cheating is low in all variations. Specifically,
in Rich, No norm variations and when the government is Corrupt, High
enforcement (30 cases, 83%) is associated with lower frequency of
cheating than Low enforcement (16 cases, 44%). Similarly, in Rich,
With norm variations when the government is Corrupt, High enforce-
ment (8 cases, 22%) is associated with lower frequency of cheating than
Low enforcement (19 cases, 53%). Results of Fisher's exact test show
high statistical significance in variations without (p = 0.001) and with
(p = 0.007) the norm-enhancing demand effect. In Poor, Corrupt, No
norm variations, CEOs cheat less in High enforcement (8 cases, 22%)
13
A. Chizema and G. Pogrebna The Leadership Quarterly 30 (2019) 101303

Table 4
Mean values and correlation matrix for experimental variables presented in Tables 5a–5c.
Mean SD Norm Enforcement Rich-Poor Corruption Gender Age Native speaker Experience Major

Norm 0.50 0.50 1

Enforcement 0.50 0.50 0 1
Rich-Poor 0.50 0.50 0 0 1
Corruption 0.50 0.50 0 0 0 1
Gender 0.47 0.50 −0.02 0.00 0.00 −0.04 1
Age 21.04 1.07 0.10 0.01 0.01 0.00 0.05 1
Native speaker 0.54 0.50 0.02 −0.00 −0.04 0.03 −0.01 −0.07 1
Income 1.53 1.42 0.06 −0.08 0.01 0.09⁎ −0.06 0.03 −0.02 1
Experience 0.80 0.71 −0.04 0.01 0.06 0.02 0.02 0.04 0.00 −0.04 1
Major 0.54 0.50 −0.03 −0.03 0.02 −0.00 −0.00 0.04 0.04 0.00 −0.03

Notes: Norm (Norm = 1; No norm = 0); Enforcement (High = 1, Low = 0); Rich-Poor (Rich = 1, Poor = 0); Corruption (Corrupt state = 1; Transparent state = 0);
Gender (Female = 1; Male = 0); Age (age in years); Native speaker dummy (1 = native speaker of English, 0 = otherwise); Income (the higher, the more the annual
income is); Experience (the higher the more experience participants have in taking part in experiments); Major (Economics or Business = 1, Other = 0).
⁎
Significant at 0.05 level.

variation compared to the Low enforcement (21 cases, 58%) variation
(Fisher's exact test = 0.002). Similarly, in Poor, Corrupt, With norm
variations, CEOs cheat less in High enforcement (3 cases, 8%) variation
than in the Low enforcement (12 cases, 33%) variation (Fisher's exact
test, p = 0.009). However, when the state is Transparent, differences
between Low and High enforcement are not statistically significant. In
these conditions, CEOs in Rich, No Norm variations resort to cheating
less in High enforcement (4 cases, 11%) compared to Low enforcement
(9 cases, 25%) variations. However, this difference is not statistically
significant (Fisher's exact test p = 0.110). A similar result is obtained
for the variations With Norm where the frequency of cheating is 17% (6
cases) in the Low enforcement condition and 11% (4 cases) in the High
enforcement condition (Fisher's exact test p = 0.37). In variations with
Transparent government, No norm, Poor variations, CEOs cheat in 5
(14%) and 2 (5%) cases in Low and High enforcement, respectively
(Fisher's exact test p = 0.21). In variations with a Transparent gov-
ernment, With norm, Poor variations, CEOs cheat in 3 (8%) and 1 (3%)
cases in Low and High enforcement, respectively (Fisher's exact test
p = 0.31). Therefore, Hypothesis 7 is only partially confirmed as the
enforcement mechanism matters only in variations with a Corrupt
government.
Overall, our findings suggest that government integrity is a very
important determinant of CEO decisions. The effects associated with
corporate governance norms and enforcement mechanisms are a lot
stronger in variations with a Corrupt government compared to one with
a Transparent government.
Table 4 provides correlation analysis and Tables 5a–5c reports a
series of comparisons between variations with a Corrupt and a Trans-
parent government. Interestingly, in all comparisons, with the only
exception of high enforcement variations with the norm-enhancing
demand effect (Fisher exact test probabilities for all comparisons
are > 0.1), cheating is more frequent in a Corrupt government condi-
tion than in a Transparent government condition (Fisher exact test
probabilities for all comparisons are lower than 0.05). Fig. 2 also shows
that the lowest frequency of cheating is associated with a Transparent
government, High enforcement variation with the norm-enhancing
demand effect. The highest level of cheating is associated with No
norm, Corrupt government, Low enforcement variation.
We also conduct a series of OLS and probit regressions (unclustered
as well as clustered by experimental variation). Results of these re-
gressions are reported in Tables 5a–5c. Tables 5a–5c show that the
norm-enhancing demand effect and high enforcement are associated
with lower cheating propensity, whereas low government integrity
(Corrupt government) as well as high business profit (Rich condition)
are associated with a high frequency of cheating. None of the personal
characteristics have a significant effect on CEOs decisions. Importantly,
the regression coefficients for government integrity are higher than the
regression coefficients for any other treatment variables, confirming
that government integrity is the most important determinant of the
propensity to cheat among CEOs in our experiment.
Recall that in 8 out of 16 variations, government integrity is low
(Corrupt condition) and CEOs may avoid checks by paying a bribe.
Table 6 provides summary statistics on the frequency of bribes in each
variation with a Corrupt government condition. Table 6 shows that the
effect of the corporate governance norm goes in the same direction for
the effect for bribing decisions and for cheating decisions. Specifically,
in the No Norm variations, overall, CEOs resort to bribing in 50 out of
75 cases, whereas in Norm variations they use bribing in 26 out of 42
cases.
We conducted a clustered12 probit regression, with bribery as a
dependent variable and treatment variables (corporate governance
norm, enforcement mechanism, and Rich-Poor revenue size). Even
though the sample size for bribing decisions is relatively small (there
are 117 observations from the Corrupt government variations when
CEOs cheated and, therefore, had an opportunity to resort to bribing),
we found that the only significant treatment variable is Rich-Poor
condition. Specifically, bribery was more common in the Rich rather
than in the Poor condition (coefficient β = 0.33; robust SE = 0.17, z
statistic = 1.95, and p = 0.051). Other treatment variables are not
statistically significant for bribing decisions.
Additionally, we also analyzed text data from question (3) about the
desirable characteristics of the CEO in order to better understand the
corporate governance norm. The analysis of textual information pro-
vided by the participants reveals that credible, sincere, and truthful are
among the most common characteristics of a “good” CEO as described
by the experimental participants. Fig. 3 presents the word cloud ana-
lysis mapping characteristics which were mentioned twice or more by
participants. The larger the font of the trait, the more it was mentioned
by participants. Overall, Fig. 3 shows that characteristics associated
with integrity are very common. Specifically, participants mentioned
“credible” 53 times (most frequent), sincere – 41 times, reliable – 30
times, and truthful – 25 times.
Discussion of laboratory results
Our experimental results confirm the link between corporate gov-
ernance, decision making by leaders and government integrity. In fact,
results from a series of Fisher's exact tests suggest that government
integrity is a better determinant of how leaders make decisions and
choices than corporate governance norms and enforcement mechan-
isms. Specifically, making social norms more transparent, through
creating a demand effect, potentially leads to higher corporate
12
Observations were clustered by experimental treatment variation (8 var-
iations where Corrupt government condition was implemented).

14
A. Chizema and G. Pogrebna The Leadership Quarterly 30 (2019) 101303

Table 5a
Results of the OLS and probit regressions using all experimental data.
Dependent variable is “Cheating” (1 = decision to hide profit by the CEO; 0 - otherwise).
Independent variable OLS Probit

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3

Coefficient (SE) Coefficient (SE) Coefficient (robust Coefficient (SE) Coefficient (SE) Coefficient (robust
SE) SE)

Norm (Norm = 1; No norm = 0) −0.14⁎⁎⁎ −0.13⁎⁎⁎ −0.13⁎⁎⁎ −0.50⁎⁎⁎ −0.50⁎⁎⁎ −0.50⁎⁎⁎

(0.03) (0.03) (0.03) (0.13) (0.13) (0.09)
Enforcement (High = 1, Low = 0) −0.20⁎⁎⁎ −0.20⁎⁎⁎ −0.20⁎⁎⁎ −0.76⁎⁎⁎ −0.76⁎⁎⁎ −0.76⁎⁎⁎
(0.03) (0.03) (0.03) (0.13) (0.13) (0.08)
Rich-Poor (Rich = 1, Poor = 0) 0.14⁎⁎⁎ 0.14⁎⁎⁎ 0.14⁎⁎⁎ 0.55⁎⁎⁎ 0.56⁎⁎⁎ 0.56⁎⁎⁎
(0.03) (0.03) (0.03) (0.13) (0.13) (0.08)
Corruption (Corrupt state = 1; Transparent state = 0) 0.29⁎⁎⁎ 0.29⁎⁎⁎ 0.29⁎⁎⁎ 1.05⁎⁎⁎ 1.06⁎⁎⁎ 1.06⁎⁎⁎
(0.03) (0.03) (0.04) (0.13) (0.13) (0.10)
Gender (Female = 1; Male = 0) – −0.04 −0.04 – −0.12 −0.12
(0.03) (0.04) (0.13) (0.15)
Age (age in years) – −0.02 −0.02 – −0.11 −0.11
(0.02) (0.01) (0.06) (0.05)
Native speaker dummy (1 = native speaker of English, – 0.02 0.02 – 0.09 0.09
0 = otherwise) (0.03) (0.03) (0.13) (0.14)
Income (the higher, the more the annual income is) – −0.00 −0.00 – 0.00 0.00
(0.01) (0.01) (0.04) (0.05)
Experience (the higher the more experience participants – 0.01 0.01 – 0.01 0.01
have in taking part in experiments) (0.02) (0.02) (0.09) (0.09)
Major (Economics or Business = 1, Other = 0) – 0.03 0.03 – 0.12 0.12
(0.03) (0.03) (0.13) (0.13)
Clustered by – – 32 experimental – – 32 experimental
sessions sessions
Constant 0.22 ⁎⁎⁎
0.69 0.69 −0.96⁎⁎⁎
1.15 1.15
(0.04) (0.33) (0.30) (0.14) (1.21) (1.11)
Number of observations 576 576 576 576 576 576
R2 for OLS/pseudo R2 for probit 0.21 0.22 0.22 0.20 0.21 0.21

Notes: No norm = demand effect enhancing endogenous social norm was not used; Norm = demand effect enhancing endogenous social norm was used.
⁎⁎⁎
Significant at 0.001 level.

Table 5b
Results of the OLS and probit regressions using data without the norm-enforcing demand effect.
Dependent variable is “Cheating” (1 = decision to hide profit by the CEO; 0 - otherwise).
Independent variable OLS Probit

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3

Coefficient (SE) Coefficient (SE) Coefficient (robust Coefficient (SE) Coefficient (SE) Coefficient (robust
SE) SE)

Enforcement (High = 1, Low = 0) −0.24⁎⁎⁎ −0.24⁎⁎⁎ −0.24⁎⁎⁎ −0.84⁎⁎⁎ −0.84⁎⁎⁎ −0.84⁎⁎⁎

(0.05) (0.05) (0.04) (0.18) (0.18) (0.09)
Rich-Poor (Rich = 1, Poor = 0) 0.16⁎⁎⁎ 0.16⁎⁎⁎ 0.16⁎⁎⁎ 0.57⁎⁎⁎ 0.58⁎⁎⁎ 0.58⁎⁎⁎
(0.05) (0.05) (0.04) (0.17) (0.18) (0.11)
Corruption (Corrupt state = 1; Transparent state = 0) 0.38⁎⁎⁎ 0.38⁎⁎⁎ 0.38⁎⁎⁎ 1.26⁎⁎⁎ 1.28⁎⁎⁎ 1.28⁎⁎⁎
(0.05) (0.05) (0.05) (0.18) (0.18) (0.12)
Gender (Female = 1; Male = 0) – −0.08 −0.08 – −0.25 −0.25
(0.05) (0.05) (0.17) (0.19)
Age (age in years) – −0.01 −0.01 – −0.05 −0.05
(0.02) (0.02) (0.08) (0.08)
Native speaker dummy (1 = native speaker of English, – 0.06 0.06 – 0.21 0.21
0 = otherwise) (0.04) (0.05) (0.18) (0.19)
Income (the higher, the more the annual income is) – −0.01 −0.01 – −0.01 −0.01
(0.01) (0.01) (0.06) (0.07)
Experience (the higher the more experience participants – 0.01 0.01 – 0.04 0.04
have in taking part in experiments) (0.03) (0.04) (0.12) (0.15)
Major (Economics or Business = 1, Other = 0) – 0.01 0.01 – 0.01 0.01
(0.05) (0.04) (0.18) (0.13)
Clustered by – – 16 experimental – – 16 experimental
sessions sessions
Constant 0.18⁎⁎⁎ 0.37 0.37 −1.07⁎⁎⁎ −0.16 −0.15
(0.05) (0.47) (0.43) (0.18) (1.65) (1.55)
Number of observations 288 288 288 288 288 288
R2 for OLS/pseudo R2 for probit 0.26 0.27 0.27 0.22 0.24 0.24

Notes: In this analysis only data from sessions without the demand effect were used (No norm variations).
⁎⁎⁎
Significant at 0.001 level.

15
A. Chizema and G. Pogrebna The Leadership Quarterly 30 (2019) 101303

Table 5c
Results of the OLS and probit regressions using data with the norm-enforcing demand effect.
Dependent variable is “Cheating” (1 = decision to hide profit by the CEO; 0 - otherwise).
Independent variable OLS Probit

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3

Coefficient (SE) Coefficient (SE) Coefficient (robust Coefficient (SE) Coefficient (SE) Coefficient (robust
SE) SE)

Enforcement (High = 1, Low = 0) −0.17⁎⁎⁎ −0.16⁎⁎⁎ −0.16⁎⁎⁎ −0.69⁎⁎⁎ −0.70⁎⁎⁎ −0.70⁎⁎⁎

(0.04) (0.04) (0.03) (0.19) (0.19) (0.09)
Rich-Poor (Rich = 1, Poor = 0) 0.13⁎⁎ 0.12⁎⁎ 0.12⁎⁎ 0.54⁎⁎ 0.56⁎⁎ 0.53⁎⁎⁎
(0.04) (0.04) (0.03) (0.19) (0.19) (0.10)
Corruption (Corrupt state = 1; Transparent state = 0) 0.19⁎⁎⁎ 0.19⁎⁎⁎ 0.19⁎⁎⁎ 0.80⁎⁎⁎ 0.81⁎⁎⁎ 0.81⁎⁎⁎
(0.04) (0.04) (0.04) (0.19) (0.20) (0.15)
Gender (Female = 1; Male = 0) – −0.00 −0.00 – −0.03 −0.03
(0.04) (0.04) (0.19) (0.24)
Age (age in years) – −0.04 −0.04 – −0.17 −0.17
(0.02) (0.02) (0.09) (0.08)
Native speaker dummy (1 = native speaker of English, – 0.00 0.00 – 0.03 0.03
0 = otherwise) (0.04) (0.02) (0.19) (0.20)
Income (the higher, the more the annual income is) – 0.00 −0.01 – 0.03 0.03
(0.02) (0.01) (0.07) (0.06)
Experience (the higher the more experience participants – 0.00 0.00 – −0.02 −0.01
have in taking part in experiments) (0.03) (0.02) (0.14) (0.09)
Major (Economics or Business = 1, Other = 0) – 0.04 0.04 – 0.17 0.17
(0.04) (0.05) (0.19) (0.23)
Clustered by – – 16 experimental – – 16 experimental
sessions sessions
Constant 012⁎⁎ 0.94⁎ 0.94⁎ −1.33⁎⁎⁎ 2.16 2.16
(0.04) (0.46) (0.43) (0.20) (1.85) (1.56)
Number of observations 288 288 288 288 288 288
R2 for OLS/pseudo R2 for probit 0.13 0.14 0.14 0.14 0.16 0.16

Notes: In this analysis only data from sessions with the demand effect were used (Norm variations).
⁎⁎⁎
Significant at 0.001 level.
⁎⁎
Significant at 0.01 level.

Table 6 governance norms may offer a better way to make leaders' decisions
Experimental summary statistics: Bribery frequency in Corrupt condition. more honest.
Rich Poor

No norm Low enforcement 20 of 30 11 of 21

(67%)
High enforcement 12 of 16
(75%)
Norm Low enforcement 14 of 19
(74%)
High enforcement 5 of 8
(63%)
Notes: Bribery is only possible in the Corrupt condition.
No norm = demand effect enhancing endogenous social norm was not used;
Norm = demand effect enhancing endogenous social norm was used.
responsibility in a Corrupt government condition, whereas in a
Transparent government condition the level of tax evasion is low irre-
spective of norm, enforcement strength as well as other contextual
variables (e.g., Rich versus Poor condition in terms of the payoff size).
Perhaps the most interesting result of our experiment is the impact
of the social norm of corporate governance in a Corrupt government
condition. This result suggests that making a “positive” social norm
transparent increases CEO integrity. In other words, a simple reminder
about social norms in corrupt environments might make a lot of posi-
tive difference, encouraging more responsible corporate behavior. This
result is particularly important because, in practice, many states spend
large amounts of money on developing anti-corruption measures. These
measures often take the form of either a carrot (e.g., increasing size of
salaries of decision makers in order to discourage tax evasion and
bribery) or a stick (e.g., increasing punishment for those who engage in
tax evasion and bribery). Our experimental findings show that such
carrot-and-stick measures may not help improve leaders' integrity. In
fact, campaigns which communicate positive social corporate
General discussion
(52%)
7 of 8 A central argument in this study is that leadership is embedded in
(88%) the context (Johns, 2006). As such leaders' choices and actions are in-
6 of 12
fluenced and shaped by institutions that define the context (Oc, 2018).
(50%)
1 of 3 Drawing on the arguments and literatures on leadership and integrity,
(33%) we thus sought to establish the relationship between government in-
tegrity and the effectiveness of certain corporate governance practices
across countries. The assumption is that corporate governance practices
are the result of corporate leaders' choices pursuant of the situational or
contextual factors, including the level of corruption in their countries.
Using the two-stage least squares method, a statistical technique
that takes care of endogeneity in econometric models, the field study
provides externally valid evidence that government integrity de-
termines the extent to which certain corporate governance practices are
applied. The experimental study, focusing on the individual leader,
supports the overarching finding in the first study, imposing more
structure and providing clarity on the leaders' decision-making me-
chanisms under conditions of varying, endogenous, and contextual
norms. Indeed, results from the experimental study show that CEOs are
more likely to cheat in a corrupt environment than in a transparent one.
Beyond the use of an appropriate statistical approach in 2SLS,
alongside an experimental study, this paper contributes to the literature
on contextual leadership, providing better understanding of the link
between government integrity and corporate governance practices.
Indeed, by bringing together literatures on government integrity, a
domain of political and policy studies, and corporate governance, a
domain of management and accounting and finance, this study provides
a multidisciplinary view of contextual leadership.
Moreover, findings from this study provide answers to some of the

16
A. Chizema and G. Pogrebna
Fig. 3. A word cloud analysis of the “good” CEO traits.
Notes: most commonly mentioned characteristics of “good” CEO are shown in bolder and larger font.
questions that have dominated the corporate governance literature for
some time. For example, some studies have attributed the failure or
success of corporate leadership to firm and CEO characteristics
(Hambrick & Mason, 1984) as well as a range of corporate governance
mechanisms, without taking into consideration the effect of govern-
ment integrity that vary across countries, on corporate leadership. As
such, our study expands understanding of how governments differ and
how they matter in the leadership of firms. Essentially, the study
highlights the effect of corruption on corporate leadership.
In instances where cross-country studies have been carried out, the
focus has been on the variety of corporate governance models (Aguilera
& Jackson, 2003), with emphasis on the respective effectiveness of such
models (Hansmann & Kraakman, 2001; Yoshikawa & Rasheed, 2009).
In such studies, scholars have often attributed the failure of corporate
governance systems to the quality of the institutional environment such
as the country's laws and regulations, without going beyond the level of
policy implementation to examine why such institutions are effective in
some countries and not in others. By arguing for government integrity,
a hypothesis confirmed by our findings from both field and experi-
mental studies, this research provides an important determinant to, and
indeed a potential element that leads to heterogeneity in, the success of
corporate governance practices across countries.
Indeed, our study, through a combination of field and experimental
studies, not only provides a comprehensive analysis of corporate deci-
sion making observed at the national level, but shows too the behavior
of the individual leader under different contextual and norm conditions.
In addition, our study has implications for investors. For example,
using knowledge of a country's level of government integrity, minority
investors may be able to determine the probability of exploitation they
are likely to suffer from majority shareholders or from self-interested
executives (Fama & Jensen, 1983). In cases where government integrity
is low, minority investors may have to consider mechanisms that allow
their voices to be heard either by pooling their resources together,
engaging more with legal advisors or making use of proxy voting.
Moreover, investors, in general, may need to take more attention on
how CEOs make decisions and how firms report their financial reports
in countries that have low levels of government integrity and low levels
of enforcement.
Finally, the fact that managerial accountability to both shareholders
and the board is better in countries with higher levels of government
integrity has implications for corporate governance practice. The logic
of this observation is that the need for monitoring should, therefore, be
17
The Leadership Quarterly 30 (2019) 101303
higher in countries with low levels of government integrity. In such
countries, companies may need to incur more agency costs by ap-
pointing more independent directors and making use of well-designed
managerial incentives that help align the interests of management with
those of shareholders (Shleifer & Wolfenzon, 2002).
Limitations and the possibility for further research
Notwithstanding the relevance and timeliness of this study, we
identify some limitations and suggest avenues for further research.
Although, we believe that we have captured some of the key variables
in corporate governance, future studies could test the effect of gov-
ernment integrity on other governance variables such as the use of
board committees, independent directors and the emerging theme of
board diversity. Such studies could use interviews to gather more and
direct information on corporate leaders' decision-making mechanisms
across countries with varying levels of government integrity. Moreover,
studies could focus on the behavior and decision-making mechanisms of
CEOs in several countries with varying approaches on anti-corruption
practices. We also acknowledge that the survey items we used for our
dependent variables were not worded to directly source information on
company practices but on national business norms. However, the use of
the laboratory experiment made up for this potential weakness.
Conclusion
The present study finds that government integrity has a positive
effect on corporate governance practices and choices made by corporate
leaders. Beyond the question of corporate governance choices made by
corporate leaders, this study has unveiled what appears to be weak-
nesses on current anti-corruption practices within the business en-
vironment. Consequently, two important lessons are discernible from
this study. First, from the field study, our findings demonstrate that
governments need to get it right first before expecting corporate citi-
zenry to do the right thing. Second, from the experimental study, it is
clear that in contexts where government integrity is low, the nature of
the problem lies at the heart of what is right, ethical and acceptable, on
the one hand; and what is mandated by the law, on the other. This gap
may be bridged by instilling acceptable social norms in corporate lea-
ders.
According to Axelrod (1986), a norm exists in a given social setting
to the extent that individuals usually act in a certain way and are often
A. Chizema and G. Pogrebna
punished when seen not to be acting this way. The problem, of course,
is that in contexts characterized with high levels of corruption perva-
siveness (Rodriguez et al., 2005) there may not be norms to talk about
as irresponsible actions go unpunished. This raises the question of the
origin of norms or put differently, what is the content of behavior that
might later turn into a norm? Moreover, how can norms be sustained
and maintained? An evolutionary approach to norms (Axelrod, 1986)
suggests that norms, that are often a reflection of underlying interests
and resulting political struggles in a society, originate from the domi-
nant actors in society who have the power, through punishments, to
promote a certain type of behavior. As such, norms often precede laws
but are then supported, maintained and extended by laws (Miyashita,
2007). Therefore, to the extent that those with power to change societal
norms do not have the interest or motive to do so, contexts that lack
government integrity may be difficult to change with the effect that
corporate leaders may continue to make bad corporate governance
choices and decisions.
Appendix A. Supplementary data
Supplementary data to this article can be found online at https://
doi.org/10.1016/j.leaqua.2019.07.001.
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