IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v9y2025issue-9p6823-6831.html

The Role of Ethical Leadership and Governance Mechanisms in Preventing Corporate Financial Crime: The Mediating Effect of Organizational Integrity

Author

Listed:
  • Wan Nailah Abdullah

    (Faculty of Accountancy, university Technology MARA Cawangan Kedah, Kampus Sungai Petani, Merbok, Kedah, Malaysia)

  • Hasnisah Hassan

    (Faculty of Accountancy, university Technology MARA Cawangan Kedah, Kampus Sungai Petani, Merbok, Kedah, Malaysia)

  • Sahubar Ibrahim Ismail Gani

    (Seksyen Regulatori Penerbitan, Bahagian Penguatkuasaan dan Kawalan, Kementerian Dalam Negeri, Wilayah Persekutuan Putrajaya, Malaysia)

Abstract

Corporate financial crime remains a pervasive threat to global economic stability, eroding stakeholder trust and incurring trillions in annual losses. While governance mechanisms like internal audit are widely implemented, their effectiveness is often undermined by a lack of ethical leadership and a weak organizational culture. This conceptual paper argues that the prevention of corporate financial crime is not merely a function of control systems but is fundamentally mediated by organizational integrity, the collective commitment to ethical principles and honest conduct. We propose that ethical leadership sets the moral tone and provides the necessary legitimacy for governance mechanisms, particularly internal audit, to function effectively. In turn, these empowered mechanisms foster an environment of organizational integrity, which acts as the critical buffer against financial misconduct. Drawing on agency theory, institutional theory, and social learning theory, this paper develops a novel framework positioning organizational integrity as the central mediator between leadership/governance inputs and crime prevention outcomes. The study contributes theoretically by integrating micro-level leadership behaviours with meso-level control systems and macro-level cultural outcomes. Practically, it offers guidance for boards and executives on cultivating integrity as a strategic asset, moving beyond compliance to create a genuinely ethical organizational ecosystem. Future research should empirically test this model across diverse cultural and regulatory contexts. Future research should empirically test this model using mixed-methods approaches, including employee and auditor survey data analyzed via structural equation modeling (SEM), and comparative case studies of firms with exemplary vs. deficient integrity cultures (e.g., comparing post-scandal recoveries of firms like Siemens vs. persistently fraudulent entities).

Suggested Citation

  • Wan Nailah Abdullah & Hasnisah Hassan & Sahubar Ibrahim Ismail Gani, 2025. "The Role of Ethical Leadership and Governance Mechanisms in Preventing Corporate Financial Crime: The Mediating Effect of Organizational Integrity," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(9), pages 6823-6831, September.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-9:p:6823-6831
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-9-issue-9/6823-6831.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijriss/articles/the-role-of-ethical-leadership-and-governance-mechanisms-in-preventing-corporate-financial-crime-the-mediating-effect-of-organizational-integrity/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C. & Meckling, William H., 2008. "Theory of the firm: managerial behavior, agency costs and ownership structure," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(2), April.
    2. Shamas-ur-Rehman Toor & George Ofori, 2009. "Ethical Leadership: Examining the Relationships with Full Range Leadership Model, Employee Outcomes, and Organizational Culture," Journal of Business Ethics, Springer, vol. 90(4), pages 533-547, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohammed T. Abusharbeh, 2024. "Technology-Profitability Paradox in Banking Sector: Evidence from Palestine," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14855-14873, September.
    2. Nur Ain Shahrier & Jessica Sze Yin Ho & Sanjaya Singh Gaur, 2020. "Ownership concentration, board characteristics and firm performance among Shariah-compliant companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(2), pages 365-388, June.
    3. Barbara Su, 2023. "Banking practices and borrowing firms’ financial reporting quality: evidence from bank cross-selling," Review of Accounting Studies, Springer, vol. 28(1), pages 201-236, March.
    4. Yeon‐Koo Che & Kathryn E. Spier, 2008. "Strategic judgment proofing," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 926-948, December.
    5. Ichev, Riste & Valentinčič, Aljoša, 2025. "The effect of impact investing on performance of private firms," Research in International Business and Finance, Elsevier, vol. 73(PA).
    6. Fabrizio Rossi & Maretno Agus Harjoto, 2020. "Corporate non-financial disclosure, firm value, risk, and agency costs: evidence from Italian listed companies," Review of Managerial Science, Springer, vol. 14(5), pages 1149-1181, October.
    7. Sevcan Yesiltas, 2009. "Financing Constraints and Investment: The Case of Turkish Manufacturing Firms," 2009 Meeting Papers 874, Society for Economic Dynamics.
    8. Kane, Gregory D. & Velury, Uma, 2004. "The role of institutional ownership in the market for auditing services: an empirical investigation," Journal of Business Research, Elsevier, vol. 57(9), pages 976-983, September.
    9. Tan, Monica & Liu, Bin, 2016. "CEO's managerial power, board committee memberships and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 21-30.
    10. Alfred C. Korir & Prof. Thomas Cheruiyot, PhD & Prof. Philip Bii, 2025. "The Effect of Board Tenure and CEO Duality on Firm Performance of Companies Listed in Nairobi’s Stock Exchange," European Journal of Business and Strategic Management, International Peer Review Journals and Books, vol. 10(5), pages 31-43.
    11. Theodore E. Christensen & Hang Pei & Spencer R. Pierce & Liang Tan, 2019. "Non-GAAP reporting following debt covenant violations," Review of Accounting Studies, Springer, vol. 24(2), pages 629-664, June.
    12. Shin-ichi Fukuda, 2018. "Companies’ Financial Surpluses and Cash/Deposit Holdings," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 14(3), pages 369-396, July.
    13. Ju Ryum Chung & Eun Jung Cho & Ho-Young Lee & Myungsoo Son, 2017. "The impact of labour unions on external auditor selection and audit scope: evidence from the Korean market," Applied Economics, Taylor & Francis Journals, vol. 49(48), pages 4833-4850, October.
    14. Hartarska, Valentina M. & Nadolnyak, Denis A., "undated". "Financing Constraints and Access to Credit in Post Crisis Environment: Evidence from New Farmers in Alabama," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124882, Agricultural and Applied Economics Association.
    15. Boubakri, Narjess & Ghouma, Hatem, 2010. "Control/ownership structure, creditor rights protection, and the cost of debt financing: International evidence," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2481-2499, October.
    16. Erik Kartiko & Verawati Suryaputra & Dida Farida Latipatul Hamdah & Mira Susanti Amirrudin, 2025. "Determinants of Financial Reporting Quality in the Banking Sector," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(8), pages 4217-4235, August.
    17. Fabbri, Daniela & Menichini, Anna Maria C., 2016. "The commitment problem of secured lending," Journal of Financial Economics, Elsevier, vol. 120(3), pages 561-584.
    18. Sang Cheol Lee & Mooweon Rhee & Jongchul Yoon, 2018. "Foreign Monitoring and Audit Quality: Evidence from Korea," Sustainability, MDPI, vol. 10(9), pages 1-22, September.
    19. Lu, Yao & Zhan, Shuwei & Zhan, Minghua, 2024. "Has FinTech changed the sensitivity of corporate investment to interest rates?—Evidence from China," Research in International Business and Finance, Elsevier, vol. 68(C).
    20. DEGEORGE, François & DING, Yuan & JEANJEAN, Thomas & STOLOWY, Hervé, 2005. "Does Analyst Following Curb Earnings Management?," HEC Research Papers Series 810, HEC Paris.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:9:y:2025:issue-9:p:6823-6831. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.