Factors that Determine the Decitions of CEOs to Engage in Unethical Business Practices

The importance of ethics is outlined in all aspects of life as ethics guide the actions of agents. Businesses pay special attention to developing their set of values and norms that prevent inappropriate behaviour. However, driven by the desire to achieve better results, a substantial fraction of companies act dishonestly. This paper recalls the Upper Echelons theory (Hambrick and Mason, 1984) and puts the managers in the centre of decision-making. Assuming that unethical actions represent a strategic decision, we study the factors that determine these decisions. While the majority of the literature on this topic is based on surveys, we estimate the logit and probit models to see the effects of particular factors on the probability to engage in unethical business practices. In our case it is represented by heavy tax avoidance, which commonly construed as unethical behaviour. The results that we receive have important implications for the companies’ decisions about hiring a CEO as well as raises some important questions for the further research.