The effect of ethical corporate culture on anti-fraud strategies in South Korean financial companies: Mediation of whistleblowing and a sectoral comparison approach in depository institutions

Internal fraud in financial companies can have a devastating effect on the economy, once demonstrated in the Savings and Loan Crisis in the US, and the Savings Bank Scandal in Korea. Using path analysis methods, this study attempts to explore direct and indirect pathways among three respective dimensions of ethical culture, whistleblowing policy, and overall evaluation of anti-fraud strategies in two financial sectors in South Korea (i.e., commercial bank vs. small and medium sized depository institutions). The study finds that more vibrant and proactive managerial efforts, such as setting an ‘ethical tone at the top’ and implementing an effective ‘ethics training’ are necessary to develop a whistleblowing policy in an organization, which in return, positively affect the employees’ perceived corporate anti-fraud strategies. This finding, in particular, can be beneficial for small and medium sized depository institutions, which require more cost-effective measures to have a competitive edge in financial markets.