LEGAL GOVERNANCE OF ARTIFICIAL INTELLIGENCE AND DIGITAL TRANSFORMATION: THE MEDIATING ROLE OF ETHICAL LEADERSHIP AND ITS IMPACT ON ORGANIZATIONAL SUSTAINABILITY AND INNOVATION

Abstract

This paper seeks to investigate the role played by legal regulation of Artificial Intelligence in organizational sustainability and innovation, and specifically, the moderating effect of ethical leadership. The study aims to comprehend the extent to which clear legal systems with ethical leadership can lead to innovation and organizational integrity and sustainability. A quantitative, cross-sectional design was employed, targeting organizations within a relevant industrial sector. Data were collected using validated measurement scales and analyzed using SPSS and SmartPLS to assess measurement reliability, structural relationships, and mediation effects. The findings indicate that both legal governance and digital transformation significantly enhance organizational sustainability, while ethical leadership mediates the relationship between legal governance and sustainability. However, mediation between digital transformation and organizational innovation was not supported. These results highlight the importance of regulatory alignment and technological capacity in shaping sustainable outcomes, while highlighting conditions under which leadership ethics exert greater influence. The study offers theoretical and practical insights for strengthening sustainability strategies through improved governance, leadership development, and digital integration.