The Influence of Ethical Leadership on the Financial Performance of Listed Firms in Kenya

Abstract

A review of meta-analyses and various constructs relating to ethical leadership as presented in prior studies indicate a gap in endeavors to link ethical leadership practices and financial performance of listed firms in Kenya. This study attempted to address this gap. This study was inspired by the emerging ethical issues in the contemporary business environment as witnessed in listed firms, both regionally and locally. The study sought to evaluate the influence of various ethical leadership practices on financial performance of listed firms in Kenya. The research hypothesized that ethical practices on human resources, advertising, investor relations and consumer relations affect the financial performance of the listed firms. The study adopted a causal research design to determine the relationship between ethical leadership and financial performance of the listed firms in Kenya. Collection of primary data was done by use of a semi-structured questionnaire containing both open and closed ended questions. Secondary data was collected from websites of the listed firms and the resource centre of the Capital Markets Authority (CMA). The primary data collection tool was administered in the form of hardcopy questionnaires and online Google-Forms. Descriptive analyses were used to generate quantitative reports through tabulations, percentages, and measures of central tendency for enhanced visualization and discussions. Statistical Package for Social Scientists (SPSS Version 21) was used for the analysis of the collected data. The following were carried out for each of the independent variables of the study: Component factor analysis; Tests for assumptions for regression analysis; Principal component analysis; Generation of descriptive statistics table and; correlation analysis of the variables. Thereafter, regression analysis was done to assess the significance of each independent variable. Upon analysis, the study determined that there exists a strong association between ethical human resource practices and financial performance of listed firms in Kenya. Similarly, the study determined that each of the ethical practices on advertising, consumer relations, and investor relations significantly influence financial performance of listed firms in Kenya. A joint regression test for the combined effects of the ethical leadership practices established that the practices jointly have a significant relationship with financial performance of the listed firms. Regarding ethical human resource practices, the study established that the greatest conducts that the listed firms greatly upheld are adherence to labour laws during recruitment, with recruitment always considering skill and academic qualifications of the candidates. For ethical advertising practices, the study established that no firm whichsoever condoned unethical conducts during advertisement of their products and/or services‘. For ethical consumer relation practices, the study established that listed firms uphold consumer relation policies, putting consumer interests first, before profitability. For ethical investor relation practices, the study established that information disclosure is one key practice upheld by management of listed firms. This study recommends that listed firms need to adhere to conducts of ethical leadership. The Departments of Human Resources should at all time implement their HR policies with great caution as their mandates, influence their firms‘ performance. The Marketing Departments of firms should uphold zero tolerance to unethical advertising practices. Quality is a priority to consumers. Listed firms should formulate ways of always adhering to the provision of quality services to consumers. Ethical investor relations call for truthful disclosure of information, especially regarding financial statements of the firms.