Effect of CEO transformational leadership on organizational ethical culture and firm performance: the moderating effect of competitive intensity

Abstract

Purpose The purpose of this study is to adopt the upper echelon theory to analyze the effect of chief executive officer (CEO) transformational leadership on organizational ethical culture and its subsequent impact on firm performance. The study also integrates the knowledge from the structure–conduct–performance paradigm to test whether the high degree of competitive intensity that firms experience could weaken the effect of organizational ethical culture on firm performance. Design/methodology/approach Online survey data were obtained from firms in Thailand that were randomly selected from the directory provided by the Department of Business Development (n = 200). Partial least squares structural equation modeling was used to analyze the data. Findings Organizational ethical culture significantly meditates the effect of CEO transformational leadership on firm performance. Moreover, the moderating effect analysis illustrates that the positive effect of organizational ethical culture on firm performance tends to be lower when firms have a high level of competitive intensity in the market. Originality/value Overall, this study adds new knowledge to the literature by showing that, although ethical culture created by transformational leaders can lead to high firm performance, the market environment in terms of competitive intensity could mitigate this benefit.