Relationships among Ethical Commitment, Ethical Climate, Sustainable Procurement Practices, and SME Performance: An PLS-SEM Analysis

Abstract

Although plenty of discussions have been conducted on the importance of top management’s ethical commitment (TMEC), companies’ ethical climate (EC), sustainable procurement practices (SPP) and organizational performance, empirical studies to explain the mechanism through which the top management’s ethical commitment generates favorable performance for Small and Medium Enterprises (SMEs) are still not yet established. Constructing a formal theory, we recommend that TMEC contributes to SMEs’ performance by promoting the company’s EC and SPP. This hypothetical outline was empirically tested using a sample of SMEs in Saudi Arabia. This study tested hypotheses using structural equation modelling (PLS-SEM). Our analysis shows that TMEC significantly predicts companies’ EC and SPP, which then fully mediate the effects of TMEC on SMEs’ non-financial performance (NFP). This research supports the reasonable theoretical statement that TMEC boosts SME performance by providing empirical validation. The results also show that TMEC, the company’s EC, and SPP impact SMEs’ performance directly, except for the impacts of SPP on FP.