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September 5, 2025

Ethical leadership and SME performance in Malaysia’s ICT sector - a resource-based view of leadership effectiveness as a mediator

Key Points

Results show a positive relationship between ethical leadership and organizational performance, highlighting its significance.
Data collected from 675 SMEs indicates leadership effectiveness mediates the connection between ethical leadership and performance.
Exploratory and confirmatory factor analysis supported the proposed model, demonstrating its robustness in an emerging economy.
The findings emphasize the need for ethical leadership combined with leadership effectiveness to enhance organizational performance.

Abstract

Purpose This study investigates the impact of ethical leadership on organizational performance among Malaysian ICT SMEs, focusing on the mediating role of leadership effectiveness. It explores how leadership behaviors, typically defined in Western contexts, function within a non-Western, emerging economy setting. Design/methodology/approach The study incorporates a thorough literature review to conceptualize ethical leadership as a one-dimensional construct and positions leadership effectiveness as an emerging paradigm. Organizational performance is evaluated based on growth and profitability metrics. Data were collected from 675 SMEs in the ICT sector, and the proposed model was rigorously tested using exploratory factor analysis, confirmatory factor analysis, and structural equation modeling. Findings Results indicate a positive relationship between ethical leadership and organizational performance, and similarly between leadership effectiveness and organizational performance. Moreover, leadership effectiveness was found to mediate the link between ethical leadership and organizational performance. Practical implications The findings highlight the value of ethical leadership coupled with a focus on leadership effectiveness as strategies for enhancing organizational performance. These insights offer actionable guidance for SMEs aiming to improve performance and contribute to broader economic growth. Originality/value This study contributes to SME literature by integrating the RBV with leadership research and demonstrating how ethical leadership, as an intangible resource, drives performance in emerging markets. The use of a Western-developed measurement tool, adapted to a Southeast Asian context, adds methodological novelty and cross-cultural insight. This study contributes a novel leadership-performance model for SMEs in emerging economies, advancing both ethical leadership theory and practical leadership development in ICT service sectors.

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