ARTICLE TITLE PAGE:

An Organizations Ethical Climate, Innovation, and Performance: Effects of !""ort for Innovation and
Performance Eval!ation
1. What is the main purpose of the paper? Explain the main idea of the paper.
The purpose of this study is to examine how an organizations ethical climate positively relates to its
financial performance by considering an organizations innovation, a support for innovation and
performance evaluation.
The main idea of the paper is to explain the theoretical reasons why an ethical climate positively affects
organizational performance at the organizational level through integrating the literature from various
fields, such as stakeholder theory, organizational innovation, and organizational behavior.
2. What is the issue that makes the author conduct the study?
The issue that makes the author to conduct the study is to indicate that an organizations ethical climate
can be a critical predictor of its innovation as well as financial performance. Therefore, the organizations
should pay attention to employees perceptions of the organizations ethical climate.
3. What are the main variables explained by the author in the paper. Summarize those variables.
There are 6 main variables explained by the author in the paper. Except financial performance, all
variables were selfreported by employees and managers. Employees responded to !uestions about the
organizations ethical climate and support for innovation. "anagers responded to !uestions about the
organizations innovation and performance evaluation.
1
st
variable: An organizations ethical climate.
The ethical climate was assessed using six items adopted from the measure of #ictor and $ullen %&'(()
by focusing on a benevolent ethical climate. *ample items include +,n this organization, it is expected
that , will always do what is right for the stakeholders,- +Employees in this organization have a strong
sense of responsibility to the community,- +The organization takes firm action against any misconduct,-
and +The organization provides e!ual opportunities to participate and conducts business in a fair and
transparent manner- %./ 0.'0).
2
nd
variable: An organizations innovation.
The organizations innovation is defined as the employees perception of the degree of the organizations
efforts to differentiate products or services compared with its competitors. The five items were adapted
from the measure developed by *cott and 1ruce %&''2). *ample items read +The company searches out
new technologies, processes, techni!ues, and3or ideas,- +The company develops ade!uate plans and
schedules for the implementation of new ideas,- and +There is a steady stream of innovative
products3services being developed, which competitors cannot conceive- %./ 0.44).
3
rd
variable: Support for innovation.
The organizations support for innovation is defined as the degree to which the management encourages
employees to try new things and to take risks. *upport for innovation was assessed by the measure of
5oys and 6ecotis %&''&). *ample items are, +"y leader encourages me to take risks by trying new
things,- +"y leader encourages me to develop my ideas,- and +"y leader encourages me to find new
ways around old problems- %/ 0.(2).
4
th
variable: Performance evaluation.
Zainorin bin Ali
UUM Matric No: 95191
ARTICLE TITLE PAGE:
An Organizations Ethical Climate, Innovation, and Performance: Effects of !""ort for Innovation and
Performance Eval!ation
7erformance evaluation is the degree to which employees perceive that their performance evaluation is
related to longterm based performance. 7erformance evaluation was assessed by adopting the measure
developed by 6elery and 6oty %&''6). *ample items are, +7erformance related to longterm
performance plays an important role in deciding my compensation- and +"y performance is more
often measured with ob8ective and !uantifiable results- %/ 0.69).

th
!inancial performance
:e used ob8ective measures of financial performance. *ales and revenue data for four years ; <006,
<004, <00(, and <00' ; were obtained from the 5=>, which provides the financial information for all
public companies in *outh 5orea. ?s noted previously, we obtained the sales and revenue data for the
financial performance of the <& nonpublic subsidiaries, with the support of each subsidiary. The
average growth rates of sales and revenue for the three years of <004, <00(, and <00' were used as
financial performance. "eanwhile the sales and revenue of <006 was used as a control variable to
accurately examine the effects of ethical climate on financial performance. The mean of the average
growth of sales was @A %SD/ 'A), and the mean of the average return on sales was <A %SD/2A).
o! the author conduct the study?
The data for this study was obtained from a *outh 5orean conglomerate. The conglomerate is a global
company which has approximately fifty subsidiaries in various industries such as electronics, mobile
communications, chemical, international business, and telecommunication.
The B=" team at the head!uarters sends an email including the survey purpose and !uestionnaires to all
employees and managers. The survey is conducted on "arch each year, and lasts over a period of three
weeks.
*urvey !uestionnaires asked about their organization, and the survey used referentshift approaches
%$astro, <00<). ?ll items were rated by using a fivepoint Cikerttype scale ranging from strongly
disagree %&) to strongly agree %@).
,n order to confirm the validity and factor structure, exploratory and confirmatory factor analyses were
conducted by using *7** &<.0 and ?"D* 4.0. Each analysis was performed by managers and
employees response, respectively.
o! many sample that he studied and !hat is the unit of analysis. o! do the author test his"her
hypotheses.
6ata were collected from employees and managers of 2& subsidiaries of a conglomerate in *outh 5orea
through survey !uestionnaires.
,n order to obtain the data for this study, one of the authors contacted a key person in the B=" team at
the head!uarters and explained the purpose of this study. They asked permission to use the data regarding
the survey results and financial performance. Eirst, they ac!uired the survey results conducted in <004 for
Zainorin bin Ali
UUM Matric No: 95191
ARTICLE TITLE PAGE:
An Organizations Ethical Climate, Innovation, and Performance: Effects of !""ort for Innovation and
Performance Eval!ation
the 2& participating subsidiaries. The total sample consisted of @62 managers and 9@,4<&employees. The
average response rate was 46A %SD/&0.@A) with a range of @&A to '6A by subsidiary. *econd, in the
case of nonpublic subsidiaries, the sales and revenue data for four years ; <006, <004, <00(, and <00' ;
were obtained each subsidiary, and financial data for public subsidiaries were obtained from the 5=>
%5orea Exchange).
What are the findin#s of the study?
The results indicate that an organizations ethical climate is positively related to financial performance,
and its positive relationship is mediated by an organizations innovation. The result also shows that a
support for innovation has the moderating effect, such that the positive influence of an organizations
ethical climate on its innovation increases when a support for innovation is high. Bowever, this study
fails to find the moderating effect of performance evaluation.
What is your comment re#ardin# the paper?
The purpose of this study is to examine how an organizations ethical climate positively relates to its
financial performance by considering an organizations innovation, a support for innovation and
performance evaluation. This study attempted to explain the theoretical reasons why an ethical climate
positively affects organizational performance at the organizational level through integrating the literature
from various fields, such as stakeholder theory, organizational innovation, and organizational behavior.
?s the importance of ethical climate as a source of competitive advantage has increased %1uller and
"cEvoy, &'''), many previous studies have assumed that an organizations ethical climate would lead to
higher organizational performance. Bowever, the empirical findings on this relationship are somewhat
mixed and the theoretical reasons are not sufficiently articulated. "oreover, prior studies have been
usually conducted by using the perceived ethical climate and performance at the individual level %e.g.
"orris, &''4).
The results showed that an organizations innovation mediated the positive relationship between an
organizations ethical climate and financial performance, and such relationship was stronger for
organizations with a high level of support for innovation. ,n summary, this study contributes to the ethical
climate literature by theoretically explaining a) why an organizations ethical climate leads to financial
performance, b) examining the mediating effect of an organizations innovation, and c) verifying the
moderating effect of support for innovation.
This study also provides practical implications for organizations in developing countries such as *outh
5orea by showing that an organizations ethical climate can be an important predictor of financial
performance as well as an organizations innovation.
Zainorin bin Ali
UUM Matric No: 95191