The Influence of Ethical Leadership and Internal Control System Effectiveness on Employees’ Perceived Corruption: The Mediating Role of Employees’ Perceived Corporate Social Responsibility

Cha, Jia Hui (2025) The Influence of Ethical Leadership and Internal Control System Effectiveness on Employees’ Perceived Corruption: The Mediating Role of Employees’ Perceived Corporate Social Responsibility. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Employees’ perceived corruption has become increasingly prominent according to the Association of Certified Fraud Examiners (ACFE). With 1.5 million registered companies, it accounts for most of Malaysia’s economy. Given that corruption can affect foreign direct investment, it is important to explore the factors that influence employees’ perceived corruption in the organisational context. This research delves into the factors affecting the employees’ perceived corruption, including ethical leadership, internal control system effectiveness, and employees’ perceived corporate social responsibility (CSR). In addition, it explores the role of employees’ perceived CSR as a mediator among the independent variables (ethical leadership and internal control system effectiveness) and the dependent variable (employees’ perceived corruption). To meet the objectives, this research employs a quantitative method through cross-sectional analysis and an online questionnaire methodology. The data was collected from 215 full-time employees who currently working at the Malaysian organisations and was further analysed through SPSS Version 27.0 and SmartPLS Version 4.0. The findings indicate that ethical leadership and employees’ perceived CSR influence the employees’ perceived corruption in Malaysia. However, the internal control system can only influence employees’ perceived corruption through the mediator, employees’ perceived CSR. This research contributes to the literature by emphasising the significance of ethical leadership on employees’ perceived corruption, as well as the pivotal role of employees’ perceived CSR as mediator between the effective internal control system and employees’ perceived corruption. From a practical perspective, this research highlights the importance for organisations to invest in leadership development, particularly from an ethical dimension. It also raises awareness for organisations to improve their CSR initiatives, as the internal control system alone is unable to influence the employees’ perceived corruption. Last but not least, this research identifies some limitations and recommendations for future research. Keywords: Ethical Leadership; Internal Control System Effectiveness; Employees’ Perceived Corporate Social Responsibility (CSR); Employees’ Perceived Corruption; Social Learning Theory; Social Exchange Theory; Fraud Diamond Theory.