An organization's ethical climate, innovation, and performance : effects of support for innovation and performance evaluation

Purpose: The purpose of this study is to examine how an organization's ethical climate positively relates to its financial performance by considering an organization's innovation, a support for innovation and performance evaluation. Design/methodology/approach: Data were collected from employees and managers of 41 subsidiaries of a conglomerate in South Korea through survey questionnaires. Findings: The results indicate that an organization's ethical climate is positively related to financial performance, and its positive relationship is mediated by an organization's innovation. The result also shows that a support for innovation has the moderating effect, such that the positive influence of an organization's ethical climate on its innovation increases when a support for innovation is high. However, this study fails to find the moderating effect of performance evaluation. Research limitations/implications: There might be the issue of generalizability, because the sample of this study is on the sample of a conglomerate in South Korea. Future research with different types of organizations in other nations is needed. Practical implications: This study indicates that an organization's ethical climate can be a critical predictor of its innovation as well as financial performance. In this regard, organizations should pay attention to employees' perceptions of the organization's ethical climate. Originality/value: This study explains the mechanisms on how an organization's ethical climate is related to its financial performance, and provides implications for organizations strivings for ethics in developing countries such as South Korea.