The impact of an ethical environment on managers' project evaluation judgments under agency problem conditions |
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| Institution: | 1. Islamic Research and Training Institute (A member of Islamic Development Bank Group), Jeddah, Saudi Arabia;2. Hanken school of Economics, Helsinki, Finland;3. Center of Research Excellence for Islamic Banking & Finance, Research Institute, King Fahd University of Petroleum & Minerals, Dhahran, Saudi Arabia;4. Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman |
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| Abstract: | This paper proposes that a strong ethical environment will be effective in reducing the tendency for managers to continue failing projects in both the presence and absence of agency problems. The findings support these propositions, with a strong ethical environment found to significantly reduce managers' tendency to continue failing projects. Also, while agency problem effects were still present under a strong ethical environment, their impact was similar to the case of a weak ethical environment in the absence of agency problems. These findings suggest that creating a strong ethical environment may be a highly desirable control option for organizations generally. |
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