Complexity, Novelty, and Ethical Judgment by Entrepreneurs

How do individual characteristics and the business environment affect the ethical judgment of entrepreneurs? We build on literatures in stakeholder and cognitive theory to examine the effects of situational complexity and novelty on an entrepreneur's ethical judgment. Our conceptual framework shows how confirmation biases and inward biases affect the ethical judgment of entrepreneurs. We test our theory using cross country data from the World Values Survey. We find that the ethical judgment of self-employed individuals is lower than that of non-entrepreneurs and that differences are moderated by the complexity and novelty of their decision setting. We also find that the ethical judgment of entrepreneurs with low levels of entrepreneurial initiative is the lowest, especially in moderately complex and novel decision settings. We argue that these findings have important implications for stakeholder approaches to entrepreneurial ethics