Ethical Behavior of Firms and Foreign Direct Investments in African Settings: The Moderating Effect of Judicial Independence

ABSTRACT This paper examines the relationship between ethical behavior of firms and foreign direct investments in African countries and tests whether the judicial independence moderates this association. The sample includes 108 country-year observations over a period of 2014–2017. Findings show that the ethical behavior of firms is positively associated with foreign direct investment. Similarly, judicial independence has a positive and significant effect on the same variable. When testing for the moderating effects of judicial independence, the association between ethical behavior of firms and foreign direct investment remains positive and significant for high judicial independence sub-sample, while it becomes insignificant for countries characterized by low judicial independence. The findings highlight the importance of business ethics in attracting foreign direct investment inflows in African countries. It also emphasizes the need to consider the role played by high judicial independence in strengthening this association. These results signal to policy makers in African countries the importance of adopting enforcing rules obliging firms to act ethically and strengthening judicial independence.