European Journal of Innovation Management

How ethical leadership influences creativity and organizational innovation:

Examining the underlying mechanisms
Imran Shafique, Bashir Ahmad, Masood Nawaz Kalyar,
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Imran Shafique, Bashir Ahmad, Masood Nawaz Kalyar, (2019) "How ethical leadership influences
creativity and organizational innovation: Examining the underlying mechanisms", European Journal of
Innovation Management, https://doi.org/10.1108/EJIM-12-2018-0269
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Ethical
How ethical leadership leadership
influences creativity and
organizational innovation
Examining the underlying mechanisms
Imran Shafique Received 21 December 2018
Revised 14 February 2019
COMSATS University Islamabad, Lahore, Pakistan, and Accepted 20 March 2019
Bashir Ahmad and Masood Nawaz Kalyar
Lyallpur Business School,
Government College University Faisalabad, Faisalabad, Pakistan
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Abstract
Purpose – The purpose of this paper is to answer two questions. What is the impact of ethical leadership on
followers’ creativity and organizational innovation? What are the mechanisms through which ethical
leadership influences creativity and organizational innovation?
Design/methodology/approach – Considering a market-oriented criterion to measure organizational
innovation, the data were collected from 322 small-sized information technology firms working in Pakistan.
Multilevel modeling and hierarchical regression analyses were used to explore the direct and indirect effects
of ethical leadership on creativity and innovation, respectively.
Findings – The results show that ethical leadership is an important predictor of both individual and
organizational creativity. For the individual level, the results of multilevel modeling indicate that there is a
positive link between ethical leadership and employee creativity. Furthermore, ethical leadership affects
employee creativity through knowledge sharing and psychological empowerment. At the organizational level,
the results reveal that ethical leadership is positively associated with organizational innovation directly.
Practical implications – The findings imply that ethical leadership is an important tool to
promote creativity and for the advancement of innovation for developing countries as well as for
newly developed industries.
Originality/value – This study is first to highlight the role of ethical leadership for organizational
innovation. The main contribution of the study is to explore creativity as potential mediator for ethical
leadership–organizational innovation nexus; where a market-oriented criterion is taken as proxy of
organizational innovation.
Keywords Creativity, Knowledge sharing, Organizational innovation, Psychological empowerment,
Ethical leadership
Paper type Research paper

1. Introduction
Innovation has long been acknowledged as one of the major factors for a firm success
(Elrehail et al., 2018; Woodman et al., 1993; Zacher and Rosing, 2015) and the economic
growth of a country (Capello and Lenzi, 2014; Drucker, 1985; Pradhan et al., 2018). Therefore,
scholars have always put increased emphasis on understanding the factors which facilitate
or impede innovation activities in the organizational settings. The recent era, characterized
by a highly dynamic business environment, globalizations, rapid technological changes and
reduced product life cycle, put firms under pressure to find new ways of doing things and
innovative offerings on a consistent basis to sustain competitive position in the market
( Jung et al., 2003; Zacher and Rosing, 2015). However, successful innovation depends on
various individual- (Scott and Bruce, 1994) and organization-level factors (Damanpour,
1991). For example, a range of scholarships (e.g. Elrehail et al., 2018; Hughes et al., 2018; European Journal of Innovation
Management
© Emerald Publishing Limited
1460-1060
JEL Classification — L86, M12, O30 DOI 10.1108/EJIM-12-2018-0269
 EJIM Martins and Terblanche, 2003; Amabile et al., 1996; Perry-Smith and Mannucci, 2017;
West, 2002) have recognized creativity – the creation of valuable and new thoughts – as a
precondition for innovation – the successful application of creative thoughts – across the
firm (Amabile et al., 1996; Amabile, 1998). There are many other studies which have reported
the role of various styles of leadership in attaining increased innovation performance
(e.g. Hoch, 2013; Jiang and Chen, 2018; Zacher and Rosing, 2015). Despite the existence of
many studies on the relationship between different leadership styles, creativity and
organizational innovation, this stream of research is still underdeveloped.
Past research has recognized leadership as a major source of promoting creativity as well
as an influential determinant of firm-level innovation (Hughes et al., 2018). For example,
Gumusluoglu and Ilsev (2009) examined the patterns of linkages between transformational
style of leadership and organizational-level innovation via individual-level creativity.
By using multilevel model in another study, Černe et al. (2013) investigated the influence of
authentic leadership on team creativity via individual-level creativity. Using data from
154 teams, Yoshida et al. (2014) reported impact of servant leadership on creativity
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(individual) and innovation (team). Researchers have recently reported that ethical
leadership promotes individuals’ creativity (Chughtai, 2016; Dhar, 2016; Javed et al., 2018).
With the increasing concerns about organizational ethics, it is worthwhile
knowing how leaders can increase their employees’ creativity through ethical practices
(Tu et al., 2018) as well as the impact of ethical style of leadership on organizational
outcomes. Therefore, present research intends to explore how ethical leadership influences
employees’ creativity and organizational innovation.
Ethical leaders believe in ethical types of behaviors that are supposed to be normatively
appropriate and communicate these behaviors through their own actions. Such leaders
elevate the hopes of their employees and try to convert employees’ self-concepts and
personal standards to a superior stage of goals and needs (Brown et al., 2005). In this way,
ethical leaders significantly influence work attitudes (e.g. job satisfaction) and behaviors
such as voice behavior, moral identity and organizational citizenship behavior (Brown and
Treviño, 2006). Past research has generally linked ethical leadership to followers’ ethical and
unethical conduct (Yidong and Xinxin, 2013), and less attention has been paid on the causal
linkages between ethical leadership, employees’ creativity and organizational innovation.
Yet employees often face a range of challenges and ethical dilemmas while generating and
implementing new ideas, which highlight the role of ethical leaders who promote ethical
norms, autonomy and self-accountability at work which can be considered as potential
predictors of creative behaviors and innovative outcomes. Hence, the chief objective of
present research is to know the impact of ethical leadership on the creativity, and on
organizational innovation through promotion of such creativity.
First, this study draws upon the upper echelons theory which suggests that leaders’
characteristics shapes organizational members’ interpretation of their environment
(Hambrick and Mason, 1984; Ullah et al., 2017). Accordingly, we propose that one’s view
about the workplace environment is a major determinant of one’s creativity (Amabile et al.,
1996), because an apparent workplace environment affects one’s psychological sense and
fosters one’s inspiration to produce novel thoughts. Considering ethical leadership as a
workplace context, we propose that ethical leadership is likely to increase employee
knowledge sharing, intrinsic motivation and psychological empowerment, which in turn
promote employee creativity and foster innovation at the organizational level. Given that
ethical leaders are important elements who motivate and empower their employees
(Dust et al., 2018) to yield positive workplace outcomes (Zhu et al., 2004; Jung et al., 2003), we
submit that ethical leadership is expected to develop an innovative environment and
to encourage employees to engage in creative thinking. Although past studies investigated
employee empowerment as a mechanism of employee behaviors such as employee success
 (Dust et al., 2018), and OCB ( Joo and Jo, 2017) from ethical leadership perspective, creativity Ethical
remained unaddressed. The current study suggests that employees’ psychological leadership
empowerment, along with intrinsic motivation and knowledge sharing, is the underlying
mechanism that explains the influence of ethical leadership on creativity.
Second, current literature on ethical leadership fails to provide concrete understanding of
its potential role in fostering organizational innovation. When comparing with other
leadership styles and firm outcomes linkages, the existing literature on ethical leadership
focuses on few aspects of firm-level outcomes such as firm reputation (Zhu et al., 2014), firm
performance (Wang et al., 2017), organizational change (Waheed et al., 2018), corporate
social responsibility (Pasricha et al., 2018; Wu et al., 2015) and organizational innovativeness
(Pučėtaitė, 2014). The perspective of organizational innovation is unaddressed with
exception of Pučėtaitė’s (2014) work, the only study as per our knowledge, that investigated
the role of ethical leadership on organizational innovativeness ( firm capacity to innovate) in
the Lithuanian context and found ethical leadership as an important predictor of
innovativeness. However, Pučėtaitė (2014) assessed only firm’s capacity and propensity for
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innovation rather to include actual innovation performance, for example, success of

innovation ( Jia et al., 2018; Zhang and Li, 2010). Furthermore, the mentioned study was
carried out in the western context and respondents were from single organization, therefore,
limiting the understanding on ethical leadership’s role in the eastern context across different
firms and sectors. To fill this gap, present research proposes that ethical leadership is
effective in promoting organizational innovation in the eastern context. We operationalize
organizational innovation as “the tendency of the organization to develop new or improved
products/services and its success in bringing those products/services to the market”
(Gumusluoglu and Ilsev, 2009, p. 467), hence, capturing two important aspects of innovation:
propensity to innovate and success of innovation. We, besides dearth of literature, argue
that organizational innovation is the outcome of creative attempts and accomplishments in
organizations, and thus examining the role of ethical leadership is also equally important for
organizational innovation. This research, therefore, seeks to investigate the influence of
ethical leadership on employees’ creativity and organizational innovation.
According to the proposed research framework, ethical leadership positively affects
employees’ creativity directly as wells as indirectly via intrinsic motivation, knowledge
sharing and psychological empowerment. Ethical leadership and individual-level creativity
influence organizational-level innovation (Figure 1).

2. Literature and hypotheses

2.1 Ethical leadership and employee creativity
Ethical leadership refers to “the demonstration of normatively appropriate conduct through
personal actions and interpersonal relationships, and the promotion of such conduct to

- Knowledge Sharing
- Intrinsic Motivation
- Psychological
Empowerment

Ethical Employee Organizational

Leadership Creativity Innovation Figure 1.
Proposed conceptual
framework
 EJIM followers through two-way communication, reinforcement, and decision-making”
(Brown et al., 2005, p. 120). Ethical leaders possess characteristics like integrity, caring,
openness, honesty, altruism, trustworthiness, justice and collective motivation, which in turn
motivate them to take fair and ethical choices (Brown et al., 2005; Brown and Treviño, 2006).
In addition, ethical leaders positively affect the employees’ creativity via cognition and
motivation (Tu and Lu, 2016). It is noted that leaders with high ethical and moral values
positively stimulate employee cognition through emphasizing the importance of employee
work to achieve organizational goals (Brown and Treviño, 2006; Tu and Lu, 2016). In this way,
cognitive mechanism motivates employees to put increased attention on the value of their
work, thus leading them toward the production and application of novel ideas in order to find
new ways to attain organizational objectives. Furthermore, ethical leaders take employees into
consideration and motivate them to communicate their concerns and suggestions via dyadic
open communication, thus developing more trust (Brown et al., 2005). Moreover, this open
communication inspires the employees to use their imagination to produce new thoughts in
relation to upgrading the existing work procedures (Tu and Lu, 2016). The motivational
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mechanism is concerned with ensuring that the ethical leaders are respected by their followers
for their development and dignity which allows the employees to attain novel skills and
knowledge pertinent to work (Zhu et al., 2004). In response, it will escalate the efficacy of the
employees, thereby fostering the employees to perform their work creatively.
Moreover, ethical leaders are people oriented and are likely to promote human rights,
self-respect, talents and learning by providing the employees with opportunities to acquire
the necessary job-related abilities and knowledge, and placing them in the right position
(Ciulla, 2004; Zhu et al., 2004). They also motivate followers to channel their capabilities in
the right direction for greater work performance, and consequently the employees will
receive the knowledge, skills and ability to perform innovatively and in turn will be
expected to exercise an innovative attitude in the work setting which would enhance their
creativity. Furthermore, upper echelon perspective helps us to explain the relationship
between leader and follower (Waldman et al., 2004) in a sense that ethical leaders provide
followers with great liberty and control over workplace decision making, which ensures
autonomy, freedom and willpower regarding jobs, thus enabling them to make and
implement novel plans (Piccolo et al., 2010). Therefore, ethical leaders’ integrity, care and
concern for employees, and fair and ethical treatment motivate employees with a feeling of
self-worth which activates employee cognition at work and thus results in novel ideas.
Therefore, we postulated that:
H1. Ethical leadership has a positive association with employee creativity.

2.2 Ethical leadership and knowledge sharing

According to the social exchange theory (SET), people’s activities are based on principle of
reciprocity (Emerson, 1976). Gouldner (1960) states that reciprocity is a basic rule of SET
which hypothesizes that people regulate the sharing of their knowledge with others
relevant to their interests on the basis of reciprocal costs and advantages. In the
organizational context, knowledge sharing refers to the exchange of job-related
information, documents, working patterns, competencies and personal experiences
(Lu et al., 2006). The key advantages of ethical leaders are that such leaders promote two-
way communication and trust, which give employees higher commitments of knowledge
sharing in the workplace (Brown and Treviño, 2006; Tu and Lu, 2016). Sharing relevant,
unique and useful information enables recipient employees to use such information in
order to accomplish work activities which may increase the likelihood of creativity.
For example, Carmeli et al. (2013) reported that knowledge sharing, both internal and
external, positively influences the creativity.
 In this research, we hypothesize that ethical leadership would motivate employees to Ethical
share knowledge, which turn would promote creativity. It is noted that in the firms where leadership
ethical leaders develop procedures to assist knowledge sharing and develop a cooperative
environment, employees are likely to engage in knowledge generation and dissemination
(Carmeli et al., 2013). The establishment of such an environment facilitates employees’
interaction and communication, and helps them to develop cooperative and trust-based
linkages with the leader(s) and peers (Avolio et al., 2004). Consequently, employees put their
efforts into the creation of knowledge in order to maintain communication and foster
cooperation, thus increasing the extent to which they bring novel ideas into their workplace
(Ma et al., 2013; Ullah et al., 2016; Wang and Noe, 2010). Therefore, knowledge sharing is
proposed as a mechanism which nurtures employee creativity. Thus, we propose the
following hypothesis:
H2. Knowledge sharing mediates the relationship of ethical leadership and employees’
creativity.
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2.3 Ethical leadership and employee intrinsic motivation

Intrinsic motivation denotes the psychological state where one is involved in a job because of
one’s personal will, not due to external reward or forces associated with the job (Deci and
Ryan, 1985). According to Sinha et al. (2010) autonomy, opportunities for self-direction,
developmental feedback and support from the leader to accomplish challenging and complex
tasks foster employees’ intrinsic motivation. In contrast, threats, deadlines and imposed goals
are associated with low levels of intrinsic motivation (Van Yperen and Hagedoorn, 2003;
Ryan and Deci, 2000). Ethical leaders provide constructive criticism, continuous feedback on
performance, guidance and coaching, support in task achievements, information sharing,
empowerment of subordinates and opportunities for self-directing, which help employees to
complete challenging tasks, thereby increase their feelings of autonomy, dignity and
confidence (Steinbauer et al., 2014). Thus, when ethical leaders make it clear that each
individual employee will be treated fairly, equally and ethically in their task achievements, it
brings those employees a greater feeling of autonomy, security, relatedness and competence,
which in turn increase intrinsic motivation (Shin and Zhou, 2003). Amabile (1998) intended
that an individual’s intrinsic motivation level is critical in determining the behaviors that may
lead toward creative work performance, because intrinsic motivation makes a difference
between what someone can do and what they will do. Intrinsically motivated individuals have
greater desire to explore curiosities, learn and pursue for novelty (Zhang and Bartol, 2010).
Furthermore, intrinsically motivated individuals are more likely to translate their motivation
into high level and valued job activities, particularly those characterized by complexity,
creativity and challenging task requirements (Tu and Lu, 2016). Therefore, it is proposed
that an ethical style of leadership promotes employees’ intrinsic motivation which in turn
increases their creativity. Hence:
H3. Intrinsic motivation mediates the link of ethical leadership and employees’ creativity.

2.4 Ethical leadership and psychological empowerment

Psychological empowerment refers to an individual’s psychological state encompassing
meaning (one’s feeling regarding the meaningfulness of one’s job), competence (one’s ability to
perform one’s job i.e. self-efficacy), self-determination (one’s feelings of freedom and autonomy
regarding the job) and impact (one’s view on the extent to which one’s behavior can make a
difference in job outcomes) in relation to their current job (Spreitzer, 1995). Ethical leaders
consider developmental needs and well-being of their employees to enable their growth and
efficacy relevant to their jobs (Walumbwa et al., 2011). Seeking training opportunities for
 EJIM employees and showing support through ethical decision making, ethical leaders facilitate
employees in experiencing a “work-role fit” and achieving heightened levels of self-efficacy,
thus fostering meaning and competence (Zhu et al., 2004). Through providing autonomy,
protecting human rights, encouraging participation in decision making and ensuring
dignity, ethical leaders foster in employees the feelings of self-determination and impact
(Zhu et al., 2004). In sum, ethical leaders foster the psychological empowerment of employees
through fair treatment, dignity, protection and ethical decision making.
Deci et al. (1989) contend that psychological empowerment is one of the key determinants
of creativity. Individuals who are empowered are expected to engage in creative activities
( Jung et al., 2003). Likewise, Sheldon and Kasser (1995) suggest that autonomy is a central
feature of creative individuals. According to Zhang and Bartol (2010), when employees
consider their jobs important and meaningful to them and to the organization, they strive
with more passion to find novel ways to solve the problems and in turn their creativity is
promoted (Gilson and Shalley, 2004). Thus, it is expected that employee psychological
empowerment is likely to serve as an underlying mechanism in explaining their creativity.
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As discussed earlier, ethical leaders show integrity, support and fair treatment in relation to
their followers, thereby enhancing the autonomy and psychological empowerment of the
latter. When employees have a high level of psychological empowerment they willingly
engage in and focus on producing novel approaches toward solving problems, thus
promoting creativity (Spreitzer, 1995). Therefore, it is proposed that ethical leadership
affects employee creativity through psychological empowerment. Hence:
H4. Employees’ psychological empowerment mediates the association of ethical leadership
and employee creativity.

2.5 Employee creativity and organizational innovation

Shalley and Gilson (2004) suggest that individuals are the basic source of innovation.
Individual employees who come up with creative ideas provide the initial information which
serves as raw material for innovation at the organizational level (Oldham and Cummings,
1996; Tu and Lu, 2016; Zhang and Bartol, 2010). Creative employees are often keener to find
ideas for new products, as well as new ways to use existing products processes, and/or
procedures (Amabile et al., 1996). Therefore, such employees can be considered as the
ultimate source of high innovative performance in an organization. Moreover, these
employees not only come up with creative ideas but also do the necessary planning to
implement the new ideas (Gumusluoglu and Ilsev, 2009; Shalley and Gilson, 2004).
In addition, besides being idea champions, creative employees are likely to serve as role
models and influence other employees in the workplace thus turning them also into idea
generators. The novel ideas of creative employees can also be transferred to other employees
in the organization for their self-development and usage, which in turn may lead toward
the development and promotion of organizational innovation (Shalley and Gilson, 2004).
Thus, individual-level creativity is expected to lead innovative outcomes at the organizational
level via producing and implementing new ideas. Therefore, it is hypothesized that:
H5. Employee creativity has a positive relationship with organizational innovation.

2.6 Ethical leadership and organizational innovation

Woodman et al. (1993) define organizational innovation as the creation of important and
useful novel products in organizational settings. More specifically, organizational
innovation –considered from a market-oriented aspect – is defined as a firm’s propensity
to produce new or improved products, and introducing these products to the market
successfully (Gumusluoglu and Ilsev, 2009). This perspective is also in line with
 Damanpour’s (1991, p. 561) concept of product innovation: “new products and/or services Ethical
introduced to fulfill an external user’s or market need.” Most of the studies on ethical leadership
leadership have focused on individual- and group-level ethical (i.e. ethical behavior,
misconduct, etc.) and behavioral outcomes (i.e. engagement, satisfaction, creativity, etc.).
Only a few studies have tried to investigate the effect of ethical leadership on firm outcomes
such as financial, operational and environmental performances (e.g. Eisenbeiss and van
Knippenberg, 2015; Shin et al., 2015; Wu et al., 2015). As compared to other leadership styles,
the literature seems to lack the examination of ethical leadership and organizational
innovation nexus, hence the need for further research to investigate ethical leadership-firm
outcomes through individual- and organizational-level mechanisms (Ko et al., 2018).
Ethical leaders are expected to foster innovation and the propensity of firms to innovate.
Ethical leaders, as moral managers, always focus on the influence of their jobs on
employees, overall organization and even society and embed meanings within their work
(De Hoogh and Den Hartog, 2008). As a result, employees realize the importance of their jobs
for the organization and pay more attention to creating novel products/services in order to
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achieve organizational objectives. Since ethical leaders are deemed to show characteristics
like altruism, honesty, morality, integrity (Gardner et al., 2005) and commitment
(De Hoogh and Den Hartog, 2008), employees feel psychologically more secure when
sharing their new ideas. In contrast, when employees see their leaders as immoral person
going beyond ethical norms and values (such as getting involved with self-serving
behavior), they limit themselves in sharing morality, values and creative ideas because of
having contradiction with those of their leaders.
In addition, ethical leaders also differentiate themselves by encouraging two-way
communication in the groups, as they always listen honestly and whole-heartedly to their
followers. They also allow subordinates to share their concerns and views, which
consequently will inspire the employees to come up with new thoughts for improving work
processes, methods and procedures relevant to their work unit as well as to those of the
entire organization (Martins and Terblanche, 2003). Ethical leaders are also expected to
have a positive effect on the market success of organizational innovations. According to
Gumusluoglu and Ilsev (2009), leaders elucidating a strong vision on innovation, with
confidence and determination, will endeavor to ensure the success of that innovation.
Such leaders display behaviors beyond traditional leadership, and thus are effective in
encouraging their followers to ensure the market success of the organization’s innovations
( Jung et al., 2008). In the research and development (R&D) setting, the followers’
performance depends on quality-based metrics, as opposed to quantity-based ones;
therefore, a highly professional rather than traditional leadership style is pivotal in
optimizing quality-based performances. Moreover, besides playing internal roles, ethical
leaders may play external roles, for example, championing and boundary spanning
(Chen and Hou, 2016) in order to determine market needs and the successful marketing of
innovations (Gumusluoglu and Ilsev, 2009; Piccolo et al., 2010). Therefore, it is suggested
that ethical leadership is positively associated with innovation; that is, with a firm’s
propensity to innovate and the success of innovation. Hence:
H6. Ethical leadership promotes organizational innovation.
H7. Ethical leadership fosters organizational innovation through creativity.

3. Methodology
3.1 Study sample selection
The study tested hypothesized relationships by conducting a survey-based field study
using a sample of 322 employees and corresponding leaders from small-sized software
 EJIM development information technology (IT) firms. Of the 83 IT firms involved, only 49 fulfilled
the two criteria required for selection as a sample firm in this research: minimum four years
of age and in-house software development. Out of these, 43 firms’ leaders indicated their
consent to take part in this research. The participants were owners/managers/direct
supervisors of the R&D personnel. For each company, the leader provided the list of R&D
staff involved in the identification of the problems, design and software development. Of
these participants, five did not submit their responses.
The firms in the sample are virtually identical in the context of firm size and the kind of
job performed. All the firms are small sized with 3–17 employees and all the employees take
part in the process of developing new and/improved products, as explained by Keller (1992)
in Development Work. There are two reasons for selecting such a sample. First, it is
appropriated to examine the creativity (individual level) and organizational innovation due
to the nature of business activities these firms perform. Although the software development
jobs these firms offer are associated with the need for creativity (Ullah et al., 2016), scholars
have paid little attention to the areas of creativity and innovation in this sector. Moreover,
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the share of software development is increasing in industrial innovation; therefore, the

sample is enough for quantifying organizational innovation. Second, small entrepreneurial
firms as compared to large firms probably show greater innovative efforts because of their
“greater flexibility,” and perhaps have “younger and more growth-oriented personnel”
(Ettlie, 1983, p. 29). Thus, it seems reasonable to consider this sample most suitable for
achieving our research objective.
The study sample consisted of 281 males (87.3 percent) and 41 females (12.7 percent).
The employees’ average age was 28 years. Out of the total sample, 82.2 percent were
graduates and among these, 27.8 percent held a master’s degree. The average tenure of the
employees was 2.5 years. The firms’ average life and size were approximately 4.8 years and
7.4 employees, respectively.

3.2 Data collection procedure

The data collection consisted of two phases, followed by an initial interview of the owners/
managers of ten firms. The objective of the initial interview was to identify the software
development activities undertaken by the firm. In addition, the managers and selected
employees of these firms were given the questionnaire to see whether the questionnaire
items were easy to understand and appropriate/relevant to their job. The participants,
without any exception, approved the ease and relevancy of the questionnaire items. After a
period of two weeks, the two-phase formal data collection was started. In the first phase, all
employees filled in their part of questionnaires completely but leaders were given their part
of questionnaire partly. In the second phase – after a gap of one month – the leaders filled in
the remaining parts of the questionnaire. All the questionnaires were completed in working
hours. During this activity the researchers were there to answer any queries and gather the
filled survey questionnaires. As all the respondents were Pakistani, all of the items were
translated into Urdu and then back-translated into English in order to ensure conceptual
similarity (Brislin, 1986). All the items were measured on a five-point Likert scale, except
innovation performance.
The employees’ part of the questionnaire consisted of constructs of ethical leadership,
knowledge sharing, psychological empowerment and intrinsic motivation. All the
employees were requested to provide their demographic (e.g. gender and age) and job-
related information (e.g. job tenure) as well. Leaders’ responses were taken on two different
surveys with an interval of four weeks. In the first survey, leaders were requested to give
information about their firm’s innovations, and also to state their firm’s age. In the second
survey, they were requested to rate the creativity of their subordinates. Main objective for
conducting the leaders’ surveys at two different time intervals was to avoid the risk of bias
 and exaggerated consequences that could have happened if the leaders had filled in the part Ethical
about organization-level innovation as well as the creativity of their employees at the same leadership
point of time.

3.3 Individual-level constructs

3.3.1 Ethical leadership. In this study, ethical leadership was measured through Brown
et al.’s (2005) ten-item scale. Participants were asked to rate their immediate bosses (e.g.
manager, leader, supervisor, in-charge, etc.). Sample item is “My supervisor listens to what
employees have to say.” The value of Cronbach’s α was 0.91.
3.3.2 Knowledge sharing. To measure knowledge sharing, we used eight-item scale by
Lu et al. (2006). Participants specified how often they had associated themselves with
particular behaviors in the last year. A sample item is “I actively use IT sources available in
the company to share my knowledge.” The value of Cronbach’s α was 0.78.
3.3.3 Intrinsic motivation. Intrinsic motivation was measured through a five-item scale
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developed by Tierney et al. (1999). Employees mentioned the degree to which every
statement related to them in the form of their present jobs. The sample items are “I enjoy
coming up with novel thoughts or goods/services” and “I enjoy developing current goods/
services or procedures.” The value of Cronbach’s α (0.77) ensured reliability.
3.3.4 Psychological empowerment. To measure psychological empowerment construct, a
12-item scale developed by Spreitzer (1995) was adapted. The sample items are “I’ve
considerable effect on what occurs in my department” as well as “I’ve considerable
independence in deciding how I perform my work.” Cronbach’s α was 0.82.
3.3.5 Creativity. In this research, the followers’ creativity was a dependent variable. The
focus of this study is the creativity of R&D personnel as well as propensity to transform
creative thoughts into innovative goods/services. Therefore, both the production of the
thoughts and their application by these workers should be taken into account to calculate
creativity (Mumford et al., 2002). This study adapted a 13-item scale – which covers these two
ideas – from Zhou and George (2001) and Tierney et al. (1999). Leaders assessed the creativity
of their workers four weeks after the workers had rated the leadership. The sample items are
my employee “Promotes as well as champions thoughts to others” as well as “Provides as a
good example for creativity.” The reliability of the scale was 0.95.
3.3.6 Controls. Job tenure and education level of the followers were used as control
variables as these variables are connected to creativity. Amabile (1998) stated that creativity
results from learned skills, experience and formal education. Shalley and Gilson (2004)
reported that experience reflects the knowledge which might determine creative behavior.
Hence, we used job tenure as an anchor of experience.

3.4 Firm-level constructs

3.4.1 Ethical leadership and firm-level creativity. In order to predict firm-level outcomes, this
study follows previous research (e.g. Yidong and Xinxin, 2013) and considered ethical
leadership at the firm level. Accordingly, ethical leadership rated by the employees was
aggregated to the firm level. Furthermore, to analyze the hypotheses related to firm-level
innovation, employees’ ratings on creativity by their leaders were aggregated to the firm
level by averaging the figures for every firm. One-way ANOVA gave initial support for
aggregating inferior ratings of ethical leadership. The results showed that between-group
dissimilarities were significantly beyond within-group dissimilarities (F ¼ 2.08, p o0.001).
Intra-class correlation ICC1 and ICC2 were 0.49 and 0.93, respectively. Furthermore, the
median Rwg ( j) value was 0.86, thus supporting that aggregation was suitable for this
variable. We also aggregated individual creativity scores to firm level, for each firm.
 EJIM 3.4.2 Organizational innovation. There is no universal consensus to measure
organizational innovation because this concept is diverse and complicated (Camisón and
Villar-López, 2014). We operationalize innovation as a firm’s propensity to develop improved or
novel goods/services as well as its success in carrying those goods/services to the marketplace.
This includes new products, modification of existing products and custom-based projects.
Gumusluoglu and Ilsev (2009) and Jia et al. (2018) suggest that marketplace measures
of innovation are more robust and present a more precise innovation index than the use of
traditional measures of innovation. To calculate organizational innovation, the product of two
ratios was used in the present research: innovativeness tendency coefficient and success of
product innovation. Innovativeness tendency coefficient represents firms’ orientation toward
innovation and is calculated as a ratio of sales generated through product innovation
to total sales. Success of product innovation is the ratio of sales generated through product
innovation to expenses/amount spent on those innovations. This approach is consistent with
Mokhber et al. (2018). Moreover, Jung et al. (2003) suggest that it is a better indicator of
innovation than those indicators computed by using R&D expenditures as a whole.
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3.4.3 Controls. Organization age was a control variable in this research, since previous
research studies refer to its positive association with firm innovation ( Jung et al., 2003).

4. Analysis and results

4.1 Individual-level analysis
4.1.1 Descriptive statistics. The values of means, standard deviations and α coefficients, as
well as correlations amongst all individual-level variables, are displayed in Table I. The
inter-correlations demonstrated that creativity is positively and significantly associated
with psychological empowerment (r ¼ 0.31, po0.01), knowledge sharing (r ¼ 0.13, p o0.05),
intrinsic motivation (r ¼ 0.24, p o0.01) and ethical leadership (r ¼ 0.27, p o0.01). Ethical
leadership has significant positive associations with psychological empowerment (r ¼ 0.39,
p o0.01), knowledge sharing (r ¼ 0.56, p o0.01) and intrinsic motivation (r ¼ 0.31, p o0.01).
4.1.2 Individual-level hypotheses tests. Table II presents the results of the study
hypotheses on the direct and indirect relationships with outcome variables. These
hypotheses were tested by employing Mplus 7 as the data of this research were tested
within firms, and also the model comprised cross-level associations between ethical
leadership (at the firm level), mediators (at the individual level) and worker creativity
(at the individual level) (Muthén and Muthén, 2012).
Following Krull and MacKinnon (2001), in order to examine the straight and mediated
results this research has employed the multilevel meditational modeling technique.
This technique integrates Baron and Kenny’s (1986) meditational analysis method into
hierarchical linear models. In addition, this technique also comprises the examination of
direct results as well the mediated results. Furthermore, the Sobel test is employed for the

Variable Mean SD 1 2 3 4 5 6 7

1. Education – – –
2. Experience 4.2 5.23 −0.06 –
3. EL 4.01 0.73 −0.09 −0.15 (0.91)
Table I. 4. PE 4.21 0.62 0.11 0.21** 0.39** (0.86)
Mean, standard 5. KS 4.13 0.69 0.18* 0.19* 0.56** 0.24** (0.93)
deviation and 6. IM 3.96 0.81 −0.08 0.04 0.31** 0.19** 0.11 (0.79)
correlation coefficients 7. CRT 4.10 0.78 0.14 0.07 0.27** 0.31** 0.13* 0.24** (0.92)
for individual-level Notes: EL, ethical leadership; PE, psychological empowerment; KS, knowledge sharing; IM, intrinsic
variables motivation; CRT, individual creativity. *p o0.05; **po 0.01
 CRT PE KS IM
Ethical
leadership
Education 0.11
Experience −0.04
Ethical leadership 0.28**
Education 0.18**
Experience 0.07*
Ethical leadership 0.39**
Education 0.10
Experience 0.01
Ethical leadership 0.17
PE 0.29**
Education 0.13**
Experience 0.09**
Ethical leadership 0.48**
Education 0.12
Experience −0.01
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Ethical leadership 0.14

KS 0.31**
Education 0.02
Experience −0.05
Ethical leadership 0.29**
Education 0.11
Experience −0.03
Ethical leadership 0.22**
IM 0.16 Table II.
Notes: PE, psychological empowerment; KS, knowledge sharing; IM, intrinsic motivation; CRT, individual Multilevel modeling
creativity. *po 0.05; **p o0.01 results for creativity

multilevel mediational modeling technique (Krull and MacKinnon, 2001) to check the
significance of the mediating effect. Job tenure and educational level of the employees are
considered control variables in all the hierarchical models.
Results presented in Table II provide empirical support for H1 which states that ethical
leadership predicts employee creativity (β ¼ 0.28, p o0.01). Furthermore, findings support
H2 and H4 stating that knowledge sharing and psychological empowerment serve as
mediating mechanism for “ethical leadership–employee creativity” nexus. Results show that
ethical leadership is positively linked with knowledge sharing (β ¼ 0.48, p o0.01), and
knowledge sharing is positively associated with creativity (β ¼ 0.31, p o0.01). Moreover,
when knowledge sharing was introduced along with ethical leadership, the relationship
between ethical leadership and creativity became insignificant (β ¼ 0.14, ns), indicating the
presence of full mediation. Similarly, ethical leadership is also linked with psychological
empowerment (β ¼ 0.39, p o0.01), and psychological empowerment is associated with
creativity (β ¼ 0.29, p o0.01). Moreover, when psychological empowerment was introduced
along with ethical leadership, the relationship between ethical leadership and creativity
became insignificant (β ¼ 0.17, ns), supporting the presence of full mediation. For H3,
findings failed to support the mediating role of intrinsic motivation because, despite
significant effect of ethical leadership on intrinsic motivation (β ¼ 0.29, p o0.01), the
relationship between intrinsic motivation and creativity was insignificant (β ¼ 0.16, ns).

4.2 Organizational-level analysis

4.2.1 Descriptive analysis. Table III presents descriptive analyses results including means,
standard deviations and correlations for organization-level variables. The results had
 EJIM shown no significant correlation of firm age with variables of interest. Ethical leadership
was found to have significant positive correlation with organization-level creativity
(r ¼ 0.46, p o 0.01) and organizational innovation (r ¼ 0.35, p o 0.01). Furthermore,
creativity was significantly related to innovation (r ¼ 0.21, po 0.05). The descriptive
analysis provides preliminary evidence for the potential influence of ethical leadership on
organizational innovation, thus, leading us to perform further analysis to investigate causal
relationship among these variables.
4.2.2 Organizational-level hypotheses testing. We performed hierarchical regression
analysis to investigate the degree to which ethical leadership affects organizational
creativity and innovation. H6 states a direct positive effect of ethical leadership on
organizational innovation. Results of regression analysis suggest that after controlling the
effect of firm age, ethical leadership positively influences organizational innovation
(b ¼ 0.42, p o0.01) (Table IV ).
In addition to that, ethical leadership positively affects firm-level creativity (b ¼ 0.31,
p o0.01), once the effect of firm age is controlled. H7 states that creativity mediates the
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effect of ethical leadership on organizational innovation. The creativity is significantly

( p o0.10) associated with organizational innovation (b ¼ 0.12, p ¼ 0.081), the data partially
support H7. Following the procedure of Baron and Kenny (1986), we calculated the indirect
effect and level of significance. However, the results did not support the presence of
mediation (b ¼ 0.037, ns), thus rejecting H7.

5. Discussion and implications

This research contributes both theoretically and methodologically to the literature on
leadership and innovation. In this study, for the first time, the effect of ethical leadership
on organizational innovation was investigated along with the mediating role of creativity.
The study further investigated the potential influence of ethical leadership on employee
creativity through intrinsic motivation, psychological empowerment and knowledge
sharing. Two analyses were performed: one with individual-level outcomes and the
other with firm-level outcome variables. The findings suggest that ethical leadership has
strong positive effects on employee creativity, intrinsic motivation, psychological
empowerment and knowledge sharing. In addition to this, ethical leadership was found to

Mean SD 1 2 3
Table III.
1. Firm age 4.18 4.21
Mean, standard
deviation and 2. Ethical leadership 4.01 0.58 −0.13
correlation coefficients 3. Creativity 4.10 0.67 0.07 0.46**
for organizational- 4. Organizational innovation 1.87 0.51 0.16 0.35** 0.21*
level variables Notes: *po 0.05; **p o0.01

Organizational innovation Creativity

Model 1 Model 2 Model 1

Firm age 0.11 0.08 0.06

Ethical leadership 0.42** 0.28** 0.31**
Creativity 0.12*** –
Table IV. R2 0.35** 0.41** 0.26**
Results of hierarchical ΔR
2
0.35** 0.06* 0.26**
regression analysis Notes: *po 0.05; **p o0.01; ***p o0.10
 have close linkages with organizational innovation, thus suggesting ethical leadership Ethical
is the key factor to foster individual and to promote organizational-level positive leadership
performance outcomes.
The findings are important for the following reasons: first, the existing work on ethical
leadership shows inconsistent results and further exploration is needed in order to confirm
its impact on workplace behaviors and outcomes. The present study was carried out in a
“real-work setting” and suggests ethical leadership is a positive antecedent of employee
creativity. Second, ethical leadership is expected to optimize workplace outcomes in
a collective culture compared with individualistic western cultures. Given that Pakistan is a
collectivist society, ethical leadership is expected to be more effective in Pakistani
organizations than in organizations in the west. Third, the study also tries to answer
whether ethical leadership is as important for organizations in developing countries as in
those of developed economies.
The mediating role of psychological empowerment is significant in relation to employee
creativity, which shows that employee psychological empowerment has a strong effect on
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creativity. The reason for this relationship is that psychological empowerment gives
feelings of autonomy to think creatively and innovatively. The relationship between
knowledge sharing and employee creativity is significant, it shows that employees are
motivated through knowledge sharing culture and feel their work is a source of honor to
serve humanity. For insignificant effect of intrinsic motivation, findings imply that
motivation is integral element and prerequisite of creativity, therefore, have no significant
effect separately.
Ethical leadership has a positive and significant relationship with organizational
innovation. These findings show that ethical leadership – when ethical leaders show their
concerns and consideration for the innovation of organization – has a direct impact not only
on employees but also on organizational innovation. They accept the creative ideas and
work on these so that their organizations have a competitive advantage over their
competitors and they also increase the motivation and empowerment of employees.
The proposed hypothesis between creativity and organizational innovation showed a
non-significant relationship (β ¼ 0.12, p ¼ 0.081). This relationship could be insignificant for
several reasons. It is possible that the ideas given by the employees in some organizations
are not treated as serious or useful, as they are in other organizations (Gumusluoglu and
Ilsev, 2009). Thus, such behavior by their organizations may restrain them from being
innovative. Another reason could be lack of communication, where innovative ideas are not
communicated in the right way, thus creating ambiguity in leaders’ minds, and/or leaders
find it difficult to understand the ideas correctly, which is essential for innovation
(Elkins and Keller, 2003; Perry-Smith and Shalley, 2003). Findings show that ethical
leadership directly affects employee creativity but this direct effect vanishes once mediators
are introduced. This implies that ethical leadership does not promote creativity directly
rather it uses several mechanisms through which it develops and fosters creativity. This
relationship could be due to the collectivist culture of Pakistan’s society (Hofstede, 1980) and
the implementation of creativity has to overcome many hurdles, so the creativity always
remains in the shadows.
The study presents important theoretical and managerial implications. First, compared
with past studies (e.g. Chen and Hou, 2016; Duan et al., 2018; Javed et al., 2018; Ma et al.,
2013), this study proposes and tests that ethical leadership is an important predictor of
creativity which in turn promotes organizational innovation. The findings answer “how”
ethical leadership influences creativity, thus explaining the underlying mechanisms
through which ethical leaders promote creativity. Second, the proposition of mediational
role of creativity for ethical leadership–organizational innovation linkage tries to
demystify potential mechanism to foster organizational innovation. Despite insignificant
 EJIM relationship between creativity and innovation, the findings help researcher to infer that a
certain level of creativity is essential to promote innovation. If management fails to elevate
creativity up to that certain level, the investment in human resources and efforts to
develop human capital would be in vain and might become an expense. Furthermore, the
insignificant relation between creativity and innovation might be because of
methodological issue as respondent firms have an average age of 4.18. Thus, frequency
of innovation could be important aspect along with quality of innovation. Third, the study
also enriches the analytical methodology as it uses more objective-based market-oriented
measure of organizational innovation rather using subjective measure as was done
previously with other leadership styles (e.g. Al-Husseini and Elbeltagi, 2016; Matzler et al.,
2008; Paulsen et al., 2009; Sethibe, 2018). The recent studies examining other leadership
style–innovation nexus also affirm robustness of market-oriented measure in terms of its
objectivity and prefer it over perception-based measure (e.g. Jia et al., 2018; Mokhber et al.,
2018). This measure can also be used as proxy of innovation of entrepreneurial firms in
developed countries and across different sectors as well as in developing economies where
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other measures such as patents are inappropriate. This measure is different from other
tools as it captures both the tendency of innovation and resultant performance of that
innovation, thus an indicator of firm competitive advantage (Zhang and Li, 2010). Fourth,
the findings of study also present implications for managers. The mediating mechanisms
for creativity suggest that leaders should follow the principles of psychological
empowerment and norms of knowledge sharing to intervene for creativity. For
organizational innovation, managers should enhance creativity – in terms of both
frequency and novelty of ideas – up to such level where acceptability of these ideas by the
organization is high, thus increasing the likelihood of organizational innovation. Finally,
developing and enhancing ethical leadership capabilities will help management to
promote environment conducive to propensity of innovation.

6. Limitations and future directions

Besides important contribution, the study is not exempted from limitations which must be
considered while elucidating findings of the study. Employee creativity rated only by
leaders might result in more/less inflated ratings for more/less favorite employees.
A cross-sectional study setting also limits the understanding on how ethical leadership
determines creativity and innovation over time. Although this study shows that IT is an
emergent field of research for management and psychology research, further research is
needed to focus on enablers and conditions of ethical leadership as well as its impact of
workplace outcomes. Future research might be conducted in other sectors and across
startup businesses to analyze if ethical leadership is equally important in fostering
creativity and enhancing innovation for new startups across other contexts. A cross-
regional and cross-cultural study would help researchers understand the way ethical
leadership affects employee and firm outcomes. Moreover, further research is required
concerning the ethical practices of leaders in service industries, e.g. hospitals, studying
nurses and doctors who influence the employees’ behavior to become more creative or
innovative. This research also shows that leaders must be motivated to accept employees’
ideas for the implementation of innovation in organizations. Similarly, as ethical
leadership has direct impact on the employee creativity, does it have differential effects
over and above other similar leadership styles, e.g. transformational, inspirational and
authentic leadership? Moreover, further research may also examine how, without groups
and cohesion of employee creativity, ethical leadership brings organizational innovation
into manufacturing and service industries. Future research should be able to focus on
more variables such as the personality of employees and leaders, and the internal locus of
control and organizational trust, to produce some more effective research.
 7. Conclusion Ethical
Ethical practices promote knowledge sharing and psychological empowerment among leadership
employees which foster them to think creatively. Ethical leaders are the people who have
powers to implement these creative ideas to enhance organizational innovation. Top
management can establish a competitive advantage through their creative personnel and by
innovation in the organizations. Establishment of an ethical environment gives
empowerment to employees and facilitates them to think about development of new
products which in turn enhances innovation at the firm level. Generally, favoritism prevails
in less developed countries and serves as an obstacle when treating employees. Employees
do not get fair reward and promotions due to favoritism and sycophants in the
organizations. Employees find fewer opportunities to show their creativity because leaders
do not support them. However, this study suggests ethical leadership as cure to such
issues which hinder creativity and advocates potential benefits ethical leadership could
result in. Firms should promote education and training of ethical leadership to enhance
creative thinking for organizational innovation. Group tasks must be designed to enhance
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employee confidence and team-building relationships so that sense of empowerment and

knowledge sharing could be enhanced among employees because these are supreme source
of creative thinking and innovation.

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 EJIM Further reading
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Corresponding author
Masood Nawaz Kalyar can be contacted at: masood.kalyar@yahoo.com
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