The relationship between ethical leadership and organizational performance in information communication technology (ICT) small and medium enterprises (SMEs): a mediating effect of leadership effectiveness / Chitra Madanchian

Malaysia has the vision to be a developed country by 2020. To achieve this vision, the
country needs to further strengthen its economic development and growth. Small and
Medium Enterprises (SMEs) development is one of the important sources for
economic development and growth. However, compared to the SMEs in many
developed countries their contributions to the country’s economy need to be enhanced.
According to the literature, ethical leadership and leadership effectiveness are two
important factors rolling organizational performance, however, research on these two
factors in small businesses, especially SMEs in Malaysia, is still lacking. On the other
hand, the Information Communication Technology (ICT) has been known as an
enabler lifting Malaysia to achieve the Vision 2020 and yet Malaysia needs more
focus on SMEs and ICTs to improve its economic growth. Therefore, this study
concentrates on the organizational performance of SMEs in Malaysia from the
perspective of the ethical leadership and leadership effectiveness, specifically ICT
sector’ leaders and examines the relationship between ethical leadership and
organizational performance through the effect of leadership effectiveness as a
mediator. To achieve this, this study begins by reviewing the literature in the areas of
ethical leadership, leadership effectiveness, and organizational performance. The
ethical leadership was chosen as a one-dimensional construct and leadership
effectiveness as a mediator which are considered the most recent paradigms of
leadership. Growth and profitability were used as measures for organizational
performance. Afterward, a conceptual model was developed to test the hypotheses,
with data being collected from 383 ICT companies of SMEs context in Malaysia using
a probability sampling method. Confirmatory factor analysis and structural equation
modeling (SEM) using path analysis were used to test the proposed model and to
verify all hypotheses on the effects of ethical leadership and leadership effectiveness
on organizational performance. This study demonstrated that there is a significant and
positive relationship between ethical leadership and organizational performance as
well as a significant and positive relationship between leadership effectiveness and
organizational performance. Also, leadership effectiveness as a mediator was found to
have an impact on the relationship between ethical leadership and organizational
performance. The findings of this study suggested that besides having ethical
leadership, leaders need to focus on their effectiveness to improve their organizational
performance. Moreover, the knowledge gained from this study acknowledges that
ethical leadership and leadership effectiveness are important resources and capabilities
in an organization as the integration of these two elements can offer success for SMEs
organizations. These proved that the results of this study can help ICT SMEs to focus
on what matters to improve their performance. The findings of this study provide a
better understanding of the contributions of ethical leadership and leadership
effectiveness to the performance of SMEs specifically ICT companies in Malaysia.