Examining the Relationship Among Ethical Leadership,Psychological Capital,and Work Outcomes Through the Lens of Social Identity Theory and Socialization Resources Theory

Abstract

This paper aims to explore the effect of ethical leadership on employee job satisfaction and organizational commitment through the potential mediator of psychological capital (PsyCap). In total, 418 employees in Ho Chi Minh City—Vietnam completed the survey. Partial least square–structural equation modeling was used to test hypotheses. The results of the study indicated a positive relationship between ethical leadership and employees’ PsyCap, job satisfaction, and organizational commitment. Furthermore, the results revealed the partial mediating effect of PsyCap on the relationship between ethical leadership and job satisfaction and between ethical leadership and organizational commitment. Since the mechanism of ethical leadership has rarely been explored, the results of this study could provide important references for further research. These results could also be greatly beneficial to organizational leaders in evaluating ethical leadership.

Keywords

psychological capital PsyCap ethical leadership job satisfaction organizational commitment social identity theory socialization resources theory

Introduction

In a highly competitive business environment, business ethics are essential to organizations, since it is directly related to productivity and profitability (Bulog & Grančić, 2017; Horton, 2021). This is especially true considering that several instances of unethical behavior and corruption have recently destroyed many companies’ reputations, disrupted the careers of their employees, and even landed the managers in legal trouble (Al Halbusi et al., 2022). Therefore, ethics is crucial to promote the good character of individuals for the prosperity of society and its individual members (Qing et al., 2020). In addition, leaders in an organization play an important role, because they can sufficiently affect their subordinates’ state of mind, incentive, manners, and productivity (Celik et al., 2015). An ethical leader is described as a manager that has “normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making” (Brown et al., 2005, p. 120). Ethical leaders who encourage their subordinates to consider ethical aspects in their actions and decision-making enhance their employees’ self-efficacy (Bouckenooghe et al., 2015). Moreover, ethical leaders as moral persons can foster desirable attitudes and behaviors due to their ability to influence their subordinates (Yates, 2014). Studies have shown that there is a significant positive relationship between ethical leadership and employees’ job satisfaction, organizational citizenship behavior, performance, and commitment (Brown & Treviño, 2006; Newman et al., 2015; Qing et al., 2020; Wu & Nguyen, 2019). However, the mechanisms through which ethical leaders influence and inspire their subordinates have not been thoroughly investigated (Avey et al., 2011; Celik et al., 2015; Mayer et al., 2012; Qing et al., 2020). For example, an anonymized meta-analysis study indicated that there is little data on ethical leadership, and both Bouckenooghe et al. (2015) and Walumbwa et al. (2011) have suggested that further research should be done on these mechanisms. Therefore, this study aims to bridge the gap by exploring how ethical leadership influences employees’ typical work outcomes (i.e., job satisfaction and organizational commitment).

Prior research has strived to gain a better understanding of the mechanism of ethical leaders and their subordinates’ behavior and attitude through the lens of three dominant theories: social exchange theory (SET), social learning theory (SLT), and social identity theory (SIT). Researchers have aimed to understand whether SIT may be useful for explaining the influence of ethical leadership on outcomes other than task performance, organizational citizen behavior, or counterproductive work behavior (Peng & Kim, 2020). Thus, this study intends to apply SIT as the theoretical underpinning to understand work-related outcomes (i.e., job satisfaction and organizational commitment). SIT posits that individuals classify themselves into various social groups, and they consider themselves to be representatives of these groups (Hogg & Abrams, 1988; Turner et al., 1987). In an organization, the self-classification process allows individuals to emphasize similarities between themselves and their leaders, who are regarded as organizational role models (Peng & Kim, 2020). Ethical leaders guide their subordinates to regard themselves as representatives of the organization and to develop high levels of organizational identification (Ashforth & Mael, 1989). Thus, this study suggests that an employee with a high level of group or organizational identification will be satisfied with their job and committed to their organization because they experience a sense of belonging to the group or organization.

Previous studies have found multiple mediators in the relationship between ethical leadership and the above work outcomes, namely ethical climate (Cansoy et al., 2021), job embeddedness and work engagement (Khattak et al., 2022), loyalty to a supervisor (Okan & Akyuz, 2015), psychological empowerment (Qing et al., 2020), work–family conflict (Freire & Bettencourt, 2020), and so forth. This study attempts to investigate a relatively new mediator in this field: psychological capital (PsyCap). The construct of PsyCap has garnered significant attention from organizational researchers. It draws on positive psychology in general and positive organizational behavior (POB; Luthans et al., 2004) in particular (Luthans & Youssef-Morgan, 2017), and it is characterized by four components: resilience, self-efficacy, hope, and optimism (Luthans et al., 2004). PsyCap is conceptualized as a favorable and developmental mindset (Avey et al., 2011), which contributes to better workplace performance (Luthans et al., 2004). Since PsyCap is state-like, it can be developed; for example, it can be enhanced by a supportive work climate (Luthan et al., 2008). Ethical leaders affect employees’ psychological state by contributing to (a) their hope through fairness and caring; (b) their optimism by adopting a positive approach to problem-solving, which encourages them to do the same; (c) and their resilience by developing more positive coping skills when faced with the external environment (Bouckenooghe et al., 2015). However, a limited number of studies have investigated the mechanism of ethical leadership and its outcomes such as PsyCap, organizational commitment, and job satisfaction (Wu & Nguyen, 2019). Hence, this study integrated PsyCap as another outcome of ethical leadership through which to explore these mechanisms.

Regarding the mediating effect, socialization resources theory (SRT) (Saks & Gruman, 2011) assumes that PsyCap partially mediates the relationship between socialization resources (this study focuses on ethical leadership) and socialization outcomes (this study focuses on job satisfaction and organizational commitment) of employees. Hence, drawing on SRT, this study suggests that PsyCap may have a mediating effect between ethical leadership and work outcomes in terms of job satisfaction and organizational commitment.

In summary, the literature on ethical leadership and positive psychology opened fruitful areas for the theoretical understanding of ethical leadership and PsyCap. While conducting this study, the following research question will be addressed through data collection and analysis:

How is PsyCap integrated with ethical leadership and the job satisfaction and organizational commitment of employees?

This study intends to contribute to the literature in the following three ways: First, it responds to previous studies’ call for further research in ethical leadership; second, drawing on SIT, this study enriches the theoretical development of ethical leadership research by exploring whether SIT is useful for explaining the effect of ethical leadership on other behavioral and attitudinal outcomes by providing insight into the capacity of ethical leadership in generating PsyCap and focusing on two other pleasurable employee work outcomes – job satisfaction and organizational commitment; third, by extending SRT, this study empirically examines the mediating mechanism of PsyCap in the relationship between socialization resources (i.e., ethical leadership) and outcomes (i.e., job satisfaction and organizational commitment). Subsequently, the hypotheses are formulated and the conceptual framework is developed, as summarized in Figure 1

Figure 1.

Theoretical framework.

Literature Review

Theoretical Framework

Social Identity Theory (SIT)

SIT was first introduced in the 1970s by Tajfel and Turner (1979) as an account of intergroup relations. Subsequently, in the 1980s, it was developed as a general account of group processes and the nature of the social group (Hogg, 2016). Social identity refers to people categorizing themselves as members of a particular social group, which provides them with emotional value and significance (Abrams & Hogg, 1990; Tajfel, 1982). From that point forward, SIT has been expanded through a series of subtheories, such as social influence and group norms, leadership within and between groups, marginalization and deviance within groups, self-enhancement and uncertainty-reduction motivations, social mobilization and protest, deindividuation, and collective behavior (Hogg, 2016). In the leadership literature, SIT is considered a promising theoretical underpinning mechanism to study both leadership as well as the attitudes and behaviors of subordinates (Brown & Mitchell, 2010; Wu, 2021). Ethical leaders present themselves in a positive and prestigious manner, and their subordinates are also involved in the creation of such identities. Leaders with high levels of ethics foster their subordinates’ identification with them and subsequently influence their attitudes and behaviors (Brown & Mitchell, 2010). Therefore, shaping employees’ identification with leaders is crucial to yield the desired work outcomes (Wu, 2021). Hence, further building on this research, it is assumed that ethical leaders as role models develop their subordinates’ favorable work outcomes such as job satisfaction and organizational commitment.

Socialization Resources Theory (SRT)

SRT (Saks & Gruman, 2012) is an interdisciplinary theory rooted in the literature of business management, organizational psychology, and industrial relations (Cranmer et al., 2017). It is a new approach that integrates the research and literature in terms of positive organizational behavior (POB), the Job Demands–Resources (JD-R) model, self-efficacy theory, and organizational socialization (Saks & Gruman, 2011). The theory refers to socialization, which enables newcomers to discover that organizations can facilitate work adjustment and influence their long-term success and careers (Saks & Gruman, 2011). Organizational socialization involves newcomers’ transition from outsiders to organizational insiders (Bauer et al., 2007). The underlying principle of SRT is that a new job or role is intrinsically challenging; however, employees can manage these stressful workplace situations by obtaining organizational resources, which is also the most effective way to facilitate organizational adjustment and successful socialization (Saks & Gruman, 2012). In other words, when a new job is demanding, employees can cope with it by utilizing job resources (i.e., socialization resources) to facilitate organizational adjustment (Cranmer et al., 2017) (i.e., socialization outcomes). Therefore, Saks and Gruman (2011) introduced the SRT model, which presents four broad socialization resources that can develop newcomers’ PsyCap and consequently produce important proximal outcomes of organizational socialization. In the SRT model, socialization resources include orientation training, task characteristics, social support, and leadership (Saks & Gruman, 2011). Socialization outcomes include job satisfaction, organizational commitment, turnover, and job performance (Saks & Gruman, 2011). In other words, the overall goal of organizational socialization is organizational adjustment (Bauer & Erdogan, 2011).

Ethical Leadership

Ethical leadership is identified as a valid and distinct concept, as it thoroughly focuses on the ethical dimension, whereas other leadership styles concentrate on ethics as one aspect of major leadership practices (e.g., authentic, transactional, and transformational leadership) (Brown & Treviño, 2006; Brown et al., 2005; Mayer et al., 2009). For many years, ethical leadership has been described in normative terms (Bedi et al., 2015; Brown et al., 2005).Brown et al. (2005) defined it as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making” (p. 120). Ethical leadership combines two dimensions, including traits and behaviors (Brown et al., 2005). The first dimension is that of moral individuals who exhibit qualities like sincerity, integrity, virtue, reliable and so forth. The second dimension is a moral leader who proactively seeks to influence subordinates’ ethical conduct by creating ethical work culture, making decisions based on values, and practicing justice and respect for others.

Psychological Capital

PsyCap was argued to be an advanced movement (Luthans et al., 2004) that exceeds three preceding capitals, involving human capital, social capital, and economic capital. Individual PsyCap, which was described as a psychological state of positivity and development (Avey et al., 2011), is identified by a high level of four facets: hope, (self)-efficacy, resilience, and optimism (Luthans et al., 2004). Hope refers to setting goals and consistently aligning with them (Luthans et al., 2007), self-efficacy involves a person’s confidence to take on challenging tasks and work hard to succeed at them (Luthans et al., 2007), the ability to recover from crisis, adversity, or even positive changes refer to as resilience (Luthans et al., 2004), and optimism describes the way a person positively explains good and bad events that occur in their work and life (Luthans et al., 2007). Accordingly, when something positive happens, it is thought to be long-lasting and is attributed to internal forces; when something negative happens, it is thought to be situational and temporary and is attributed to external forces (Luthans et al., 2007).

Job Satisfaction

The degree to which one feels that their needs are met at work (Morse, 1953; Porter, 1962) determines how satisfied they are with their job. Moreover, job satisfaction refers to the pleasant emotional state that an individual has when they receive praise for achieving or facilitating the achievement of job values (Locke, 1976). Job satisfaction also refers to how an individual likes or dislikes their job (Spector, 1997). The various components that make up an employee’s overall job satisfaction include their satisfaction with their remuneration, promotions, managers, and coworkers (Spector, 1985, 1997).

Organizational Commitment

Organizational commitment is the extent to which employees’ involvement, identification, and emotional attachment to the organization are increased (Meyer & Allen, 1991). Generally, the psychological attitude of a person toward their attachment to their organization is referred to as organizational commitment. Organizational commitment can be divided into three categories: affective, continuance, and normative, according to Meyer and Allen (1991). The commitment of an employee who feels connected to the company and is proud to be a part of it seems to be best described as affective commitment (Meyer & Allen, 1991). A normative commitment involves an employee’s sense of obligation to continue working for the company, whereas those who are engaged in a continuance commitment are aware of the high cost of leaving and that they have no better option (Meyer & Allen, 1991). In this study, affective commitment and normative commitment are adopted to measure organizational commitment for its positive meaning in the desirable work outcome category.

Hypothesis Development

Ethical Leadership and Psychological Capital

Transparency, clear communication of accepted ethical norms, and open information sharing are crucial attributes of ethical leaders that shape their followers’ perspective of them as exemplary and reliable models to imitate (Bouckenooghe et al., 2015). Role modeling by a moral leader constitutes an instruction and provides subordinates with effective feedback about which behaviors are expected to achieve organizational goals (Bouckenooghe et al., 2015; Gardner et al., 2005; Gooty et al., 2009). Moreover, ethical leadership has been proven to enhance subordinates’ PsyCap (Avey, 2014; Bouckenooghe et al., 2015; Wu & Nguyen, 2019).

Specifically, ethical leaders encourage subordinates to evaluate the ethical aftermath of their actions and decisions. Subordinates engage in strategic thinking, which strengthens their ability to manage duties or challenges and thus constitutes their self-efficacy. A moral leader with caring and transparent fairness consequently becomes a source of information, identification, and hope (Bouckenooghe et al., 2015), which is in accordance with SIT. In addition, when faced with obstacles, employees under ethical management are more likely to adopt effective mechanisms to cope with and be more flexible (Masten, 2001; Snyder, 2000), because they trust that their leaders will help them overcome those challenges (Bouckenooghe et al., 2015). Lastly, based on SIT, this study argues that by adopting positive approaches to problem-solving, ethical leaders are regarded as an ideal that their subordinates imitate, which results in a positive interpretation of events (i.e., optimism). Therefore, the following hypothesis is proposed:

H1. Ethical leadership positively relates to subordinates’ PsyCap.

Ethical Leadership and Work-Related Outcomes

On the one hand, ethical leaders are willing to report unethical conduct by employees (Peng & Kim, 2020), and, on the other hand, they can affect subordinates’ attitudes and behaviors in a positive way (Qing et al., 2020). Ethical leaders also have a positive impact on employees’ job satisfaction (Celik et al., 2015; Kim & Brymer, 2011).Brown and Treviño (2006) suggest that ethical leaders’ influence on employee behaviors is explained in terms of social rather than economic exchange, involving reciprocal affection and trust rather than economic exchange, which is impersonal in nature. Ethical leaders are role models to subordinates due to their integrity, support, two-way communication, and care for employee well-being, which enhances subordinates’ obligation to reciprocate positive attitudes such as job satisfaction and organizational commitment (Qing et al., 2020). Therefore, leaders have the power and ability to influence subordinates’ attitudes toward their job (Qing et al., 2020; Yang & Wei, 2018; Yukl, 2013). Furthermore, ethical leaders treat employees fairly, which generates trust and enthusiasm among employees and consequently contributes to job satisfaction (Newman et al., 2014). Employees are more satisfied with their job when they perceive higher ethical climate levels and lower ethical ambiguity (Moslehpour et al., 2022).Vitell and Singhapakdi (2008) found that marketing professionals benefit from the institutionalization of ethics in organizations in terms of increased job satisfaction, organizational commitment, moral standards, and esprit de corps (team spirit within the organization). Neubert et al. (2009) indicate that ethical leaders create an ethical climate characterized by shared ethical work norms and perceptions that affect employees’ job satisfaction and organizational commitment. As noted earlier, based on SIT, this study assumed that ethical leaders who are fair, caring, and open to communication can constitute higher levels of organizational identification. An increase in group members’ satisfaction would result from a leader sensitively displaying and positively responding to the individual needs of their group members, which would then motivate them to exert more effort to work for the organization (Dick et al., 2007). Important outcomes, such as subordinates’ perception of the leader’s effectiveness, willingness to put in extra effort on the job, and willingness to report issues, are predicted by ethical leadership (Brown et al., 2005). Thus, this study proposed the following additional hypotheses:

H2. Ethical leadership positively relates to subordinates’ job satisfaction.

H3. Ethical leadership positively relates to subordinates’ organizational commitment.

Psychological Capital and Work-Related Outcomes

Prior research has found that PsyCap has a significant impact on enhancing desirable work outcomes, such as job satisfaction (Badran & Youssef-Morgan, 2015; Luthans et al., 2007; Nafei, 2015), organizational commitment (Jain & Kumar, 2017; Luthans et al., 2007; Nafei, 2015), organizational citizenship behavior (Beal et al., 2013; Bouzari & Karatepe, 2017; Nafei, 2015), and performance (Bouckenooghe et al., 2015; Carmona-Halty et al., 2018; Sen & Basim, 2018). PsyCap also reduced undesirable work-related outcomes such as turnover intentions (Agarwal, 2018; Gupta & Shaheen, 2017), deviant behavior (Avey et al., 2012; Norman et al., 2010), cynicism (Avey et al., 2012; Akcay, 2018; Sen & Basim, 2018; Stratman & Youssef-Morgan, 2019), and workplace incivility (Hashemi et al., 2018; Roberts et al., 2011). According to Avey et al. (2011), the main way that PsyCap affects employees’ work attitudes is that the higher their PsyCap, the more positive they are (optimism), the greater their sense of competence they are in their readiness to take on new challenges and forge a successful future (hope and efficacy), and the greater their durability they are (resilience). Specifically, employees’ optimistic explanations can create a sustainable system of positive appraisals in various job dimensions, interactions, successes, and accomplishments, leading to higher overall levels of job satisfaction. Hope can provide employees with a sense of control over conflicts and difficulties at work, which can increase their job satisfaction (Badran & Youssef-Morgan, 2015). In order to overcome hindrances and feel accomplished, which leads to job satisfaction, resilience can aid in the development of essential coping strategies. According to Bandura (1997), efficacy can promote the perseverance and effort needed to take on and complete challenging duties. As a result, attaining difficult goals might result in satisfaction (Locke & Latham, 2002). PsyCap can increase job satisfaction through beneficial processes such as proactive thinking, favorable evaluations and expectancies, desire and drive to pursue goals, and perseverance in the face of unpleasant situations (Badran & Youssef-Morgan, 2015). Furthermore, due to the fact that individuals with high PsyCap levels are more motivated and involved in their job and that the organization meets their demands for efficacy and achievement (Avey et al., 2011), PsyCap is linked to organizational commitment. Therefore, the following hypotheses are proposed in this study:

H4. Subordinates’ PsyCap positively relates to their job satisfaction.

H5. Subordinates’ PsyCap positively relates to their organizational commitment.

Socialization Resources Theory and the Mediating Effect of Psychological Capital

According to SRT, leadership is among the socialization resources (others include orientation training, task characteristics, and social support (Saks & Gruman, 2011). Socialization outcomes include job satisfaction, organizational commitment in addition to turnover, and job performance (Saks & Gruman, 2011). In one model presented, scholars suggest that socialization resources foster PsyCap, which, in turn, engenders socialization outcomes (Saks & Gruman, 2011). Therefore, within the context of this study, in accordance with SIT, SRT helps elucidate that ethical leadership, a socialization resource, nourishes PsyCap.

As noted earlier, the overall goal of organizational socialization is to facilitate newcomers’ organizational adjustment (Bauer & Erdogan, 2011); however, this study recognized that organizational adjustment should be considered fluid and ongoing throughout the employee’s entire career rather than in isolated moments of organizational entry (Cranmer et al., 2017; Gailliard et al., 2010). Therefore, socialization and adjustment should be explored not only by newcomers but also by senior employees. In this respect, this study aimed to extend SRT’s population by recruiting both newcomers and senior employees as target respondents in our questionnaire survey.

Furthermore, the SRT model argues that the PsyCap partially mediates the socialization resources–outcomes relationship (Saks & Gruman, 2011). Therefore, drawing on SRT, this study proposes the mediating effects of PsyCap on the relationship between ethical leadership (i.e., socialization resources) and job satisfaction and organizational commitment (i.e., socialization outcomes). This study aims to contribute to the literature by broadening the applicability of SRT beyond the target population of new employees. Although employee adjustment continues beyond organizational accession and throughout employees’ careers (Kramer & Miller, 2014), organizational socialization literature and SRT (Saks & Gruman, 2012) initially focused on newcomers. As a result, the extension of SRT to the target group of senior workers coincided with the continuous nature of assimilation beyond organizational entry and implies that SRT is relevant for both newcomers and senior employees (Cranmer et al., 2017). Thus, the following hypotheses are proposed:

H6. PsyCap mediates the relationship between ethical leadership and subordinates’ job satisfaction

H7. PsyCap mediates the relationship between ethical leadership and subordinates’ organizational commitment.

Research Methods

Sampling and Data Collection Procedures

First, the author created a preliminary version of the questionnaire based on a critical review of the literature. Second, the questionnaire items were modified inconsistently with the context of this study. Third, the questionnaire was pretested upon the first-run modification, using employees as the participants. Thereafter, the questionnaire items were revised according to the results of the pretest before they were finalized. Following Brislin (1980), to ensure the equivalency of meaning, the questionnaire was initially designed in English, then translated into Vietnamese, and finally translated back into English by two independent bilingual persons. Using convenience sampling, participants were asked to view and rate all the questionnaire items based on their personal opinions. The data from the questionnaire survey was collected by means of an online invitation to those who are currently working in Ho Chi Minh City, Vietnam. The online questionnaires consist of all questionnaire items created by Google Forms and sent to the respondents through email. This study chose this approach to collect data from various organizations in various sectors because the ethical behaviors of leaders are considered a sensitive topic that may prevent respondents from providing honest responses due to social desirability which consequently affects the results of the study (Al Halbusi et al., 2022). A cover letter was included to inform about the objective of the study and assurance of anonymity of their responses.

Scaling and Measurement

Ethical leadership was measured with nine items modified from Brown et al. (2005). A sample item of ethical leadership included “My boss disciplines employees who violate ethical standards.” PsyCap was measured with the 12-item instrument, which was reduced from the 24-item instrument developed and validated by Luthans et al. (2007). A sample item of PsyCap included “I feel confident in representing my work area in meetings with management.” Job satisfaction was measured with five items modified from Spector (1985). A sample item of job satisfaction included “I feel I am being paid a fair amount for the work I do.” Organizational commitment was measured with eight items modified from Mowday et al. (1979). A sample item of affective organizational commitment included “I am proud to tell others that I am part of this organization.” All these questionnaire items were measured based on a seven-point Likert scale ranging from 1 = strongly disagree to 7 = strongly agree.

Common Method Variance

As the data were cross-sectional, this study attempted to address the issue of common method variance (CMV; Podsakoff et al., 2003). Harman’s one-factor test (Podsakoff & Organ, 1986) was conducted to assess the CMV on all measurement items. The results did not indicate the existence of a single principal factor and displayed 39.54% of the variance in this study, which falls well below the threshold of 50%. Thus, it demonstrates that CMV did not significantly affect the study results.

Demographics of the Study

The characteristics of the respondents were noted. The respondents of the 418 valid questionnaires work in various industries such as finance, logistics, education, healthcare, and so forth. It was shown that 270 were female (64.6%) and most of the respondents ranged from 26 to 34 years old (51.2%), followed by those younger than 25 (19.2%). Most respondents have a bachelor’s degree (65.1%) followed by those with a master’s degree (31.6%). For work experience, 56.9% of the respondents possessed less than 6 years of experience, and 24.4 % had 6 to 10 years of experience. In total, 70.3% of the respondents are employees.

Data Analysis and Results

The Partial Least Squares Structural Equation Modeling (PLS-SEM) and SmartPLS 3.0 software were utilized to test the proposed hypotheses. The study found that PLS-SEM is appropriate for analyzing the collected data. Although covariance-based SEM (CB-SEM) is suggested for producing the theoretical covariance matrix, PLS-SEM aims to maximize the explained variance of the dependent latent variables and primarily predict an outcome (Hair et al., 2014). PLS-SEM is advanced, as the following criteria are met: (a) the research goal is to predict an outcome of key-driven components or constructs; (b) the structural model is complex; (c) the sample size is not large; (d) the collected data has a nonnormal distribution; and (e) the latent variable score will be used for future analysis (Hair et al., 2014). In the following section, the assessment of the measurement model and structural model will be discussed.

Evaluation of the Measurement Model

To verify the reliability of the research constructs, following Hair et al. (2017), the following purification processes should be implemented: internal consistency reliability by means of composite reliability (CR, Cronbach’s α, and R²), convergent validity (average variance extracted [AVE]), and discriminant validity (heterotrait-monotrait ratio [HTMT]). First, the composite reliability (CR) of each construct (ethical leadership, PsyCap, job satisfaction, and organizational commitment) exceeded the threshold of .7 (Hair et al., 2017), and Cronbach’s α is higher than the threshold of .7 (Hair et al., 2017). Second, the evaluation of convergent validity includes indicator reliability (outer loading) and AVE. Generally, standardized indicator reliability should be .7 or higher (Hair et al., 2017). Five indicators were removed: ethical leadership (1), PsyCap (3), and organizational commitment (1). All other indicators’ outer loadings were above .7. The AVE of all constructs exceeded the threshold of .5 (Hair et al., 2017) confirming indicator reliability (Table 1). Third, the Fornell-Larcker (Fornell & Larcker, 1981) criterion was used to assess discriminant validity, according to which the square root of the AVE of each construct should be greater than the construct’s highest correlation with any other constructs. Overall, the square roots of AVEs for all constructs are higher than the correlations of these constructs with other latent variables; thus, all constructs are valid measures of unique concepts (Table 2). Furthermore, the author of this study attempted to use HTMT, which was proposed by Henseler et al. (2015) to evaluate discriminant validity. HTMT, which is the ratio of the between-trait correlations to the within-trait correlations (Hair et al., 2017), was argued to be a higher boundary criterion than cross-loadings and Fornell-Larcker’s criterion (Hair et al., 2017; Henseler et al., 2015). The HTMT values for all pairs of constructs are lower than the threshold value of .85, which indicates that all constructs are independent of one another. Thus, all the criteria for discriminant validity were met.

Table 1.

Reliability Test and Internal Consistency.

Constructs	Cronbach’s α	CR	AVE	R ²	1	2	3	4
1. EL	.941	.952	.741	—	1.00
2. PsyCap	.915	.929	.594	.220	0.471	1.00
3. JS	.883	.915	.682	.337	0.510	0.490	1.00
4. OC	.94	.953	.743	.413	0.524	0.578	0.757	1.00

Note. EL = ethical leadership; PsyCap = psychological capital; JS = job satisfaction; OC = organizational commitment.

Table 2.

Discriminant Validity of Constructs (Fornell-Larcker Criterion).

Variables	EL	PsyCap	JS	OC
EL	.861
PsyCap	.471	.771
JS	.510	.490	.826
OC	.524	.578	.757	.862

Note. Diagonal elements (bold) are the square root of the AVE of the respective construct.

Evaluation of the Structural Model

The assessment of the structural model tested the relationship between constructs. Hypothesis testing is assessed by using bootstrapping to evaluate the significance of path coefficients. As suggested by Hair et al. (2017), this study used a total of 5,000 bootstrap samples. First, based on the research question, the empirical results indicated that ethical leadership has a positive impact on subordinates’ PsyCap (β = .471, t = 8.893), job satisfaction (β = .359, t = 7.492), and organizational commitment (β = .324, t = 5.963). Hence, hypotheses H1, H2, and H3 were supported. PsyCap had a positive impact on job satisfaction (β = .321, t = 6.745), and organizational commitment (β = .425, t = 9.634), indicating that hypotheses H4 and H5 were supported.

Second, regarding the research question of indirect effects, the study found that both indirect effects are significant. The empirical t value of the indirect effect (.152) for the EL-PC-JS relationship is 5.735, yielding a p value of less than .01. Similarly, for the indirect effect (.201) of the EL-PC-OC relationship, this study obtained a t value of 6.675, indicating a p value of less than .01. Thus, H6 and H7 were supported (see Table 3). This study also used Sobel tests (Preacher & Hayes, 2008) to further test the statistical significance of mediation effects. Two Sobel tests were conducted, including Test 1 for supporting H6 and Test 2 for supporting H7. The Sobel Test 1 results indicated that the indirect effect of ethical leadership on job satisfaction through PsyCap was significant (Sobel z test = 5.35 > 1.96, p < .001), which further supported H6. The Sobel Test 2 results indicated that the indirect effect of ethical leadership on organizational commitment through PsyCap was significant (Sobel z test = 6.51 > 1.96, p < .001), which further supported H7.

Table 3.

Path Coefficients for Direct and Indirect Effects.

Hypotheses	Path	Standardizedestimates	t-Value	p-Value
H1	EL→PsyCap	.471	8.893	.00
H2	EL→JS	.359	7.492	.00
H3	EL→OC	.324	5.963	.00
H4	PsyCap→JS	.321	6.745	.00
H5	PsyCap→OC	.425	9.634	.00
H6	EL→PC→JS	.152	5.735	.00
H7	EL→PC→OC	.201	6.675	.00

Moreover, the R² value was examined to evaluate the underlying theory of the model. Generally, R² values of .75, .50, and .25 for the endogenous constructs can be respectively described as substantial, moderate, and weak (Hair et al., 2017). Based on these standards, the prediction of PsyCap was weak (R² = .22), the prediction of job satisfaction was below moderate (R² = .337), and the prediction of organizational commitment was slightly below moderate R² = .413. These values illustrate that 33.7% of the variance in job satisfaction and 41.3% of the variance in organizational commitment can be predicted by ethical leadership and PsyCap (Figure 2). The R² value of PsyCap is weak because there is only one predictor (i.e., ethical leadership). The value can be increased if there are more predictors (Joe et al., 2014).

Figure 2.

Path analysis.

Discussion

The current study drew on SIT and SRT to develop an empirical framework to advance insight into the mechanisms by which ethical leadership relates to employees’ PsyCap and work-related outcomes. Specifically, this study investigated the relationships between ethical leadership, organizational commitment, and job satisfaction in the presence of PsyCap as a mediator. The results of this study indicated that SIT was useful for explaining the influence of ethical leadership on outcomes such as job satisfaction and organizational commitment as well as task performance, organizational citizen behavior, and counterproductive work behavior. Moreover, the results of this study confirmed and broadened the SRT that mediates mechanisms of PsyCap between ethical leadership and employees’ work-related outcomes.

The result of this study indicates that there is a positive relationship between ethical leadership and PsyCap (H1), which explains the mechanism by which ethical leadership enhances employees’ PsyCap. Greater ethical leadership behaviors (e.g., listening to subordinates, living their life ethically, modeling the appropriate behavior, …) encourage employees’ PsyCap in terms of increased hope, increased confidence, positive adaptation to stressful events, and having an optimistic outlook on their job.

This study found that two major effects resulting from ethical leadership are organizational commitment and job satisfaction (H2 and H3). The results of this study are also a response to the question that SIT, within the context of this study, is useful for explaining the influence of ethical leadership, organizational commitment, and job satisfaction. The study’s findings are in line with prior research, which indicates that positive attitudes and behaviors in the workforce can be cultivated by a moral leader through the ability to inspire their employees (Yanik, 2018; Yates, 2014). Specifically, in a fair, sincere, caring, and open manner, ethical leaders play a critical role in shaping employees’ sense of belonging to the organization, feeling more affectionately committed to the organization, and being satisfied with their job in terms of pay, benefits, recognition, colleagues, and promotion.

The findings also indicate that employees with greater PsyCap generated more satisfaction in and commitment to their organization (H4 and H5). An employee with high optimism can explain the job dimensions (pay, benefits, colleagues, accomplishment, and promotion) in a positive way. Confidence pushed employees to accept and perform challenging duties to achieve goals, which led to satisfaction. Higher levels of hope help employees plan paths to reach the goal, which makes them perceive that they can control barriers that prevent them from attaining the goal, resulting in more satisfaction. Gaining a sense of success after overcoming challenges at work might contribute to job satisfaction. In terms of commitment, high PsyCap personnel who is satisfied by the requirements for confidence and achievement enhances their loyalty and passion for performing their jobs, consequently encouraging them to stay with the company for a longer period of time.

The results revealed the partial mediating effect of PsyCap on its antecedents and outcomes (H6 and H7). In addition, the spirit of SRT (Saks & Gruman, 2011) was applied as an explanatory framework by which ethical leaders impacted their subordinates’ job outcomes through PsyCap. It is consistent with part of Saks and Gruman’s (2011) SRT, which argues that PsyCap partially mediates the socialization resources–outcomes relationship. This means that when PsyCap enters these direct relationships, ethical leadership transmits its influence on PsyCap to organizational commitment and job satisfaction. In other words, for both organizational newcomers and senior employees, a leader who wants to enhance their subordinates’ satisfaction and commitment must communicate eagerness toward organizational objectives and create a perceived positive psychological state in terms of hope, self-efficacy, resilience, and optimism.

Practical Implications

Several practical implications can be drawn from the results of this study. Employees and organizations themselves can benefit from the ethical behavior of leaders or managers in these organizations. Generally, ethical leadership effectively generated employees’ PsyCap and desirable work-related outcomes (i.e., job satisfaction and organizational commitment), which suggested the crucial role of ethical leadership. The theoretical underpinning of this study, SIT theory, concerns employees’ perceptions of who they are based on their group membership. The way employees view their leaders influences the process of organizational identification. Therefore, leaders play an important role in practice, and an ethical leadership style should be more highly desired in a particular organization. Organizations should treat ethical leadership as a foundation for building an organizational culture. Organizations need to boost ethical behavior in both managers and their subordinates. For managers, organizations should find potential candidates who illustrate a high commitment to workplace ethics, have ethical leadership certifications, or have experience with ethics training programs. Organizations should encourage ethical behavior among leaders and plan training programs for both leaders and employees. In order to stimulate a culture where high PsyCap becomes the norm, organizations should promote additional ethical practices (such as leaders’ integrity, transparency, and trust). To encourage moral behavior among employees, organizations should embed it firmly in job requirements. Firms should develop a standard ethical manual to implement an appropriate rewards and punishment policy, which may help employees understand the organization’s messages. According to this requirement, both employees and leaders are responsible for performing ethical behaviors.

Specifically, an effective leader should concentrate on ethical dimensions such as two-way communication, making fair and balanced decisions, living as an ethical role model, discussing business ethics or values with employees, setting examples of how to do things the right way in terms of ethics, or disciplining employees who violate ethical standards. In that way, the employees identify themselves as members of a certain group, feel that they are treated fairly, and consequently feel more satisfied and committed to that group. These programs are also a resource for newcomers to overcome challenges in a new work environment. As a facet of SRT, ethical leadership plays a role in supporting newcomers to the organization and ensuring a successful socialization process. The increase in PsyCap and its mediating effects on work-related outcomes show practitioners a direction to follow when implementing ethical leadership in the organization. As the results indicate, perceived ethical conduct accelerates individual PsyCap, which subsequently translates into job satisfaction and commitment to the organization. Hence, this study suggests that ethical leaders should utilize two-way communication to provide feedback on subordinates’ accomplishments and help them develop their self-efficacy and find ways to face and recover from obstacles, which strengthens their resilience. Encouraging subordinates to set goals and find alternative paths to reach their goals increases their hope. With this hope, subordinates can create positive beliefs about the future, which builds optimism.

Limitations and Direction of Future Research

This study had considerable limitations, which opens certain areas for future research. First, it only analyzed the mediating effects of PsyCap, but in actual human resource practice, employees’ satisfaction and commitment may also be affected by other factors. The inclusion of different variables may provide a more comprehensive understanding. Future research can explore the moderating variables of this model, such as the ethical climate, the characteristics of employees, and so forth. Second, cross-sectional data were employed to serve the purpose of the research. Future studies could collect longitudinal data to observe the impacts of ethical leadership on PsyCap and work-related outcomes. The observation of these impacts is because PsyCap was indicated to be state-like, which should be developed. Third, this study was only designed with single-source data from the employee’s perspective. An employee–supervisor/leader dyad was recommended for research in the future. Four, this study invited general employees to complete the survey; further research could assess participants in a particular industry to understand the mechanisms within a certain context.

Conclusion

In a competitive business environment, ethics are especially important to customers and other stakeholders as it increases profit. Thus, the importance of understanding ethical behavior in leaders becomes crucial. This study contributed to the literature on positive organizational behavior (POB) by investing in the left side of PsyCap and the influence of the mechanisms of ethical leadership on PsyCap, job satisfaction, and organizational commitment. Drawing on SIT and SRT to answer the research question, this study illustrated that ethical leaders are the source of employees’ PsyCap, job satisfaction, and organizational commitment. Another contribution of this study is that it elucidated the mediating role of PsyCap between ethical leadership and employees’ commitment to the organization and job satisfaction. Moreover, the results of this study indicated that the adjustment of employees mentioned in the SRT theory applies to both newcomers and senior employees. Finally, the hope is that this study contributes both to academics’ and professionals’ understanding of how ethical behaviors and PsyCap can be ensured in the workplace.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Ethical Approval

An ethics statement (including the committee approval number) for animal and human studies. If this is not applicable, please state this instead.

ORCID iD

Khanh-Van Ho Nguyen

Data Availability Statement

The datasets generated during and/or analyzed during the current study are available from the corresponding author on reasonable request.

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