The Influence of Leadership Style and Workplace Stress on Fraudulent Behaviour in Malaysian Financial Institutions: the Mediating Role of Employee Morale

Chong, Yu Xuen (2026) The Influence of Leadership Style and Workplace Stress on Fraudulent Behaviour in Malaysian Financial Institutions: the Mediating Role of Employee Morale. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Fraudulent behaviour remains a persistent and escalating challenge within financial institutions, posing serious threats to organisational integrity, public trust, and economic stability. In Malaysia, increasing digitalisation, complex regulatory environments, and high-pressure work conditions have intensified employees’ exposure to ethical risks and fraudulent practices. While prior studies have examined fraud primarily from structural and governance perspectives, limited empirical research has explored the behavioural and psychological mechanisms through which leadership style and workplace stress influence fraudulent behaviour, particularly within the Malaysian financial sector. Addressing this gap, the present study investigates the influence of leadership style and workplace stress on fraudulent behaviour, with employee morale examined as a mediating variable. Grounded in the Fraud Triangle Theory, Fraud Diamond Theory, Social Learning Theory, and the Job Demands–Resources (JD–R) Theory, this study adopts a quantitative, cross-sectional research design. Primary data were collected through a structured self-administered questionnaire distributed to employees working in Malaysian financial institutions. A total of 220 valid responses were analysed using IBM SPSS. The analytical techniques included descriptive statistics, reliability, validity testing, correlation analysis, multiple regression, and mediation analysis using the PROCESS macro to examine both direct and indirect effects. The findings reveal that leadership style has a significant influence on fraudulent behaviour, supporting the argument that leadership acts as both an ethical guide and a governance control mechanism within organisations. Workplace stress was also found to significantly influence fraudulent behaviour, indicating that heightened job demands and psychological strain increase employees’ vulnerability to unethical conduct. Importantly, leadership style positively affects employee morale, while workplace stress negatively affects morale, highlighting morale as a critical psychological outcome shaped by organisational conditions. Employee morale demonstrates a significant negative relationship with fraudulent behaviour, suggesting that dissatisfied employees are more likely to rationalise unethical actions. Mediation analysis further confirms that employee morale partially mediates the relationship between leadership style and fraudulent behaviour, as well as between workplace stress and fraudulent behaviour. These results indicate that leadership and stress influence fraud both directly and indirectly through their impact on employees’ emotional and motivational states. The findings extend traditional fraud theories by integrating behavioural and organisational factors, demonstrating that fraud risk cannot be fully understood without considering leadership quality, workplace stress, and employee morale together. This study contributes theoretically by expanding fraud frameworks beyond economic and control-based explanations to include psychological mechanisms, and empirically by providing Malaysia-specific evidence within the financial sector. Practically, the findings underscore the importance of ethical leadership development, effective stress management, and morale-enhancing initiatives as integral components of fraud prevention strategies. By addressing the human dimensions of fraud, organisations can strengthen governance effectiveness and foster more ethical and resilient workplace environments.