The impact of ethical leadership on creativity and performance through psychological capital, leader-member exchange, and motivation

Ethical leadership has become a hot topic in the field of organizational behavior and management, being discussed by several scholars with regard to its influence on individuals, groups and organizational outcomes. Organizations with primary motive to maximize shareholder's wealth (corporate businesses) or striving to provide promising services for societal welfare (public organizations) can never meet their goals if forgoing ethical perspective. Ethical leadership is one of the most important factors promising survival of organizations in today's dynamic work environment characterized by globalization, technological advancements, and competition. Literature suggests that ethical leadership, psychological capital, leader-member exchange (LMX) relationship and creativity is important to develop and sustain competitive advantages, and to ensure firm survival through better organizational performance achieved by greater levels of employees' psychological capital, job performance, and creativity. Health plays the key role in determining the human capital. Better health improves the efficiency and the productivity of the labor force, ultimately contributes the economic growth and leads to human welfare. Public sector health institutions of Pakistan are facing growing pressure to meet public demands efficiently while using limited financial and human resources. The focus of this study is to analyze the role of ethical leadership to promote creativity and to enhance job performance of employees of health sector of Punjab, Pakistan. The present study has three objectives: first, to explore the effect of ethical leadership on psychological capital, LMX, and intrinsic motivation of health sector employees in Punjab, Pakistan; second, to examine the possible influence of psychological capital, LMX and intrinsic motivation on employee performance (in-role and extra-role) and creativity; third, to assess the mediated effects (besides direct effect) of ethical leadership for employee performance (in-role and extra role) and creativity by considering psychological capital, LMX, and intrinsic motivation as potential mediators. This study integrates the dispersed scholastic work on ethical leadership, psychological capital, LMX, job performance, and creativity into one framework. Using survey questionnaire, this framework is then empirically analyzed through applications of partial least square structural equation modeling (PLS-SEM) in the context of public health sector employees of Punjab, Pakistan. The results show that ethical leadership has positive significant effect on employee job performance and employee creativity overall directly, and indirectly through psychological capital, leader-member exchange (LMX), and intrinsic motivation. Ethical leadership has also a positive effect on psychological capital of employees, level of leader-member exchange (LMX), and employees' intrinsic motivation in such a way that an increase in level of ethical leadership increases the levels of foresaid outcome variables. All three mediating variables were positively associated with outcome variables except for employee intrinsic motivation where it was not significantly linked with employee extra-role performance. Therefore, intrinsic motivation did also not mediate the effect of ethical leadership on extra-role job performance. Results suggest that ethical leadership reinforces several employee outcomes which can be seen in organizations in the form of enhanced creativity and performance as well as high amount psychological capital of employees and intrinsic motivation. Thus, findings of the present study prove ethical leadership, LMX, and psychological capital as important factors in promoting creativity and enhancing performance of health professionals, which in turn result in better organizational performance as well as provision of better health services to the general public.