Impact of Financial Performance on Ethical Outcomes: Evidence from Korea’s Public Enterprises and Their Subsidiaries

Seungwon Yu, Yeonwoo Sim and Suhee Kim

Emerging Markets Finance and Trade, 2025, vol. 61, issue 11, 3482-3499

Abstract: This study investigates an underexamined dimension in public enterprise: impact of financial performance on ethical outcomes, thereby inverting the conventional research focus on ethics as a determinant of financial outcomes. By conducting a comprehensive analysis of Korean public enterprises and employing robust fixed and random effects models to address endogeneity concerns, we identify several significant findings: results reveal a consistent negative relationship between the financial performance of parent enterprises and the ethical performance of both the enterprises and their subsidiaries, highlighting that greater financial success may lead to the deprioritization of ethics. Additionally, financial disparities between enterprises and their subsidiaries correlate with heightened ethical standards in the parent enterprises, reflecting the significant role of financial control and resource allocation. Drawing upon theoretical frameworks encompassing public accountability, political influence, and multiple principal-agent dynamics, this study offers valuable implications for policymakers and administrators in emerging markets, emphasizing the need to balance financial goals with ethical standards.

Date: 2025
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DOI: 10.1080/1540496X.2025.2477741

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