Week 2

Ethical Leadership Behavior and Employee Justice Perceptions: The Mediating Role of Trust in Organization

Angela J. Xu • Raymond Loi • Hang-yue Ngo

Received: 12 May 2014 / Accepted: 31 October 2014 / Published online: 22 November 2014

� Springer Science+Business Media Dordrecht 2014

Abstract Using data collected at two phases, this study

examines why and how ethical leadership behavior influ-

ences employees’ evaluations of organization-focused jus-

tice, i.e., procedural justice and distributive justice. By

proposing ethical leaders as moral agents of the organiza-

tion, we build up the linkage between ethical leadership

behavior and the above two types of organization-focused

justice. We further suggest trust in organization as a key

mediating mechanism in the linkage. Our findings indicate

that ethical leadership behavior engenders employees’ trust

in their employing organization, which in turn promotes

their justice perceptions toward the organization. The the-

oretical and practical implications of these findings are

discussed, and some directions for future research are

suggested.

Keywords Distributive justice � Ethical leadership � Organization-focused justice � Procedural justice � Trust in organization

Introduction

Ethical leadership has emerged as a core stream of lead-

ership research following the recent ethical scandals in

reputable corporations worldwide (e.g., the collapse of

Enron in the United States and the Sanlu milk scandal in

China). Defined as ‘‘the demonstration of normatively

appropriate conduct through personal actions and inter-

personal relationships, and the promotion of such conduct

to subordinates through two-way communication, rein-

forcement, and decision-making’’ (Brown et al. 2005,

p. 120), ethical leadership has been found to affect some

important employee outcomes such as job satisfaction,

voice, unethical behavior, job performance, employee well-

being, and innovation (Chughtai et al. 2014; Miao et al.

2013; Ogunfowora 2014; Tu and Lu 2013; Walumbwa

et al. 2011; Walumbwa and Schaubroeck 2009). Despite

the rapid development of this stream of research, little has

been known about the impact of ethical leadership on

perceived organizational justice among employees. Such

omission is surprising as fairness is a fundamental value

and virtue within an organization (Rawls 1971) and

employees’ perceived fairness toward their employing

organization is strongly related to their ethical assumptions

regarding how human beings should be treated in the

workplace (Loi et al. 2012). Furthermore, the well-known

whistleblowing case of Enron reveals that when managers

behave unethically, employees would not only query

managers’ ethnicity but also question whether the organi-

zation’s policies and procedures are proper or not

(Premeaux 2009). Thus, it is both theoretically and prac-

tically important to examine why and how ethical leader-

ship behavior exerts its effect on employees’ fairness

perceptions toward their organization.

Defined by researchers (e.g., Colquitt et al. 2001) as

people’s subjective perception of fairness in organizations,

organizational justice is commonly classified into four

types: distributive, procedural, interpersonal, and infor-

mational. Distributive justice and procedural justice are

A. J. Xu (&) � R. Loi Department of Management and Marketing, University of

Macau, Macau, China

e-mail: [email protected]

R. Loi

e-mail: [email protected]

H. Ngo

Department of Management, The Chinese University of Hong

Kong, Hong Kong, China

e-mail: [email protected]

123

J Bus Ethics (2016) 134:493–504

DOI 10.1007/s10551-014-2457-4

generally considered as the structural forms of justice with

the focus on the organization, whereas interpersonal justice

and informational justice are viewed as the interactional

forms of justice with the focus on the supervisor or man-

ager (Greenberg 1993; Loi et al. 2009). It has been pointed

out that, compared to interactional forms of justice, orga-

nization-focused procedural justice and distributive justice

are more robust predictors of organizational outcomes such

as turnover intentions and organizational deviance (Akremi

et al. 2010; Olkkonen and Lipponen 2006). Interestingly,

existing literature largely relates ethical leadership to the

supervisor-focused interactional justice (e.g., Neubert et al.

2009), leaving the connection between ethical leadership

and organization-focused justice under-examined. This is

an unfortunate oversight as leaders are often viewed as the

core members of the organization carrying the prototypical

characteristics of the organization and exercising social

influence to the subordinates (Loi et al. 2014). Empirical

evidence showing that leadership behavior could influence

both distributive and procedural justice (e.g., Li et al. 2014;

Pillai et al. 1999) provides partial support for our specu-

lation. In addition, given the close connection between

workplace ethics and organizational fairness (Cropanzano

and Stein 2009), ethical leaders are thought to be moral

agents of the organization who undertake a crucial role in

promoting just organizational procedures and outcomes

(Cropanzano and Rupp 2002). Colquitt and Greenberg

(2003) suggested that ethical leadership behavior, such as

accountability for ethical standards, should echo the pro-

cedural and distributive aspects of justice.

The present study aims to fill the above research void.

Previous research has identified trust as an important driver

of procedural and distributive justice (Hoy and Tarter

2004; Tyler 1994). The way how leaders behave has been

found to have significant impact on initiating employees’

trust (e.g., Whitener et al. 1998). Our study takes a step

further to investigate why and how ethical leadership

affects followers’ justice perceptions toward the organiza-

tion by exploring trust in organization as a main underlying

mechanism. By addressing ethical leaders as unique moral

agents of the organization, we argue that the actions

demonstrated by ethical leaders provide a base for nurtur-

ing employees’ trust in their organization, which in turn

enhances their evaluations of organization-focused justice.

This study makes several important contributions to the

extant literature of ethical leadership and organizational

justice. First of all, it advances our existing knowledge

which focuses mainly on ethical leadership and interac-

tional forms of justice (Brown et al. 2005; Neubert et al.

2009). By evaluating the impacts of ethical leadership

behavior on procedural and distributive justice, our study

extends current research by highlighting ethical leadership

as an important source of organization-focused justice.

Second, by exploring trust in organization as a mediating

mechanism, this study not only integrates the existing

knowledge on ethical leadership, trust, and justice, but also

illuminates the process as regard how employees make

sense of organization-focused fairness through leadership

behavior. It also reveals the proactive role that ethical

leaders may play in helping the organization build trust

with the employees, which in turn foster employees’

favorable justice evaluations toward the organization.

Third, on a practical level, this study indicates that orga-

nizations should hire and nurture ethical leaders in an

attempt to develop employees’ trust and positive justice

perceptions. We test our hypotheses using a sample of bank

employees in Macau, the southern part of China. With the

vast development of China’s financial sector and the heavy

emphasis of business ethics in the banking industry (Green

1989; Ip 2009), the findings of our study also inform bank

managers in China about the importance of displaying

ethical leadership behaviors.

Theoretical Background and Hypotheses Development

Ethical Leaders as Moral Agents of the Organization

Managers or supervisors are often regarded as core agents

of the organization (Konovsky and Pugh 1994), and their

actions are usually interpreted by their subordinates as

providing information about organization’s commitment

and intentions (Eisenberger et al. 2002; Loi et al. 2009).

Nevertheless, Coyle-Shapiro and Shore (2007) have cau-

tioned researchers that managers’ own personal interests

may not align with the interests of the organization, and

more research is needed to explicate why and when man-

agers can appropriately represent the intentions of the

organization. We argue that the distinctive characteristics

of ethical leadership can make employees readily attribute

their managers’ actions and decisions as originated from

their employing organization.

Ethical leaders have been described by Treviño et al.

(2000) as both ‘‘moral persons’’ and ‘‘moral managers’’.

The ‘‘moral person’’ dimension identifies the motivations

and personal attributes of ethical leaders, characterized as

caring, honest, trustworthy, principled, persuasive, and fair

(Brown et al. 2005). In both their personal and professional

lives, ethical leaders are committed to doing things based

upon ethical decision rules. The ‘‘moral manager’’

dimension indicates these leaders set and communicate

ethical standards and expectations, not only pattern their

own behaviors and organizational processes to meet the

moral standards, but also proactively use rewards and

discipline to hold followers accountable for ethical conduct

(Brown and Mitchell 2010).

494 A. J. Xu et al.

123

Since ethical leaders behave ethically and consistently

in both their personal and professional lives, they ‘‘talk the

walk’’ and ‘‘walk the talk’’, and are engaged in behaviors

that are seen as normatively appropriate and motivated by

altruism rather than self-interest (Brown et al. 2005). They

are viewed by employees as altruists who genuinely dem-

onstrate care and concern for employees and the organi-

zation, and take the interests and requirements of the

organization into account when making decisions (Kal-

shoven et al. 2011). Moreover, ethical leaders will stop and

punish any unethical behaviors (e.g., unfair practice and

biased actions) within the organization, and proactively

communicate with employees about conduct which is

normatively appropriate for the organization. As a result,

employees would naturally count on ethical leaders to

make sense of organizational policies, procedures, and

distributive outcomes.

Our argument of taking ethical leaders as unique moral

agents embodying the interests and standing of the orga-

nization can also be inferred from the empirical evidence

that links ethical leadership with various organizational

outcomes. For example, Neubert and his colleagues (2013)

found ethical leadership behavior predicts employees’

organizational commitment. Both Walumbwa et al. (2011)

and Yang and Liu (2014) reported a positive relationship

between ethical leadership and followers’ organizational

identification. Besides, Mayer et al. (2009) identified a

trickle-down effect of top management ethical leadership

on supervisory ethical leadership, and employees tend to

see what the organization values through the lens of their

immediate supervisors. Thus, it is logical to expect that

ethical leadership behavior at the supervisory level would

engender employees’ trust in their organization, and sub-

sequently promote their justice perceptions regarding

organization’s practices and outcome allocations, which we

are going to explain below in details.

Trust in Organization

According to Robinson (1996, p. 576), trust refers to ‘‘one’s

expectations, assumptions, or beliefs about the likelihood

that another’s future actions will be beneficial, favorable, or

at least not detrimental to one’s interests’’. Employees’ trust

in organization is an essential ingredient for a stable

employee-organization relationship (Cook and Wall 1980).

Such view is consistent with the social exchange theory

(Blau 1964), which highlights the role of trust in the emer-

gence and maintenance of a long-term employment rela-

tionship. When employees have more trust in their

organization, they would believe that a social exchange

relationship with the organization has been developed, and

they are inclined to have positive expectations about the

words, actions, motives, and decisions of the organization

(Lewicki and Bunker 1995). As a consequence, they are

likely to develop a higher level of organizational commit-

ment (Cook and Wall 1980), stay longer with the organiza-

tion (Konovsky and Cropanzano 1991), work harder (Dirks

and Ferrin 2001), and perform more organizational citizen-

ship behavior in the workplace (Wong et al. 2006).

In the process of trust building, employees constantly

monitor the organizational environment when they decide

whether to trust their organization or not (Carnevale 1988).

In particular, leaders along with their behaviors are

expected to have considerable impact on initiating

employees’ trust (e.g., Dirks and Ferrin 2002; Newman

et al. 2014). Tan and Tan (2000) argued that an employee

might make judgments regarding whether or not to trust the

organization by making inferences from his or her inter-

action with the supervisor, who is directly responsible for

communicating organizational policies and goals to sub-

ordinates. Moreover, Wayne et al. (1997) pointed out that

employees often generalize their experiences with their

supervisors to the organization. For that reason, employees’

trust in organization has been found to be associated with

their trust in supervisors (Wong et al. 2003).

As discussed above, ethical leaders stand out as the

moral agents representing the organization in managing

employment relationships with employees. Therefore, it is

natural for employees to interpret the way ethical leaders

behave and treat others as originating from the organiza-

tion. Building on this logic, we contend that ethical lead-

ership behavior, perceived by employees as acting on

behalf of the organization, will foster employees’ trust in

organization. Specifically, ethical leaders promote organi-

zational goals and interests among employees consistently

over time and across situations. Besides, they develop and

demonstrate genuine concern for the welfare of employees

(Treviño et al. 2003) in the name of the organization. They

also involve employees in organizational decision-making

processes (Kalshoven et al. 2012), and proactively and

openly communicate organizational (ethical) expectations

(Brown and Mitchell 2010). Arguably, all these are the

building blocks for generating employees’ trust in organi-

zation (Robinson and Rousseau 1994).

Furthermore, compatibility of ethical leader’s words and

actions, and credible communications from others in the

organization about honorable actions by ethical leaders are

especially important to initiate employees’ trust in the early

relationship between employer and employee (Mayer et al.

1995; Schoorman et al. 2007). Empirical findings have

demonstrated that perceived ethical leadership behavior has

a strong positive relationship with employees’ trust in

management (Avolio et al. 2004) as well as a trusting orga-

nizational atmosphere (Den Hartog and De Hoogh 2009).

In view of the above reasons, it is logical to expect that

ethical leadership behavior is conducive to the

Ethical Leadership and Organization-Focused Justice 495

123

development of employees’ trust in organization. We thus

propose the following hypothesis:

Hypothesis 1 Ethical leadership behavior is positively

related to trust in organization.

Ethical Leadership, Trust in Organization, and Justice

Perceptions

In distinguishing different types of organizational justice,

justice researchers (e.g., Colquitt 2001) generally refer

distributive justice to the perceived fairness in the alloca-

tion of organizational outcomes, and refer procedural jus-

tice to the perceived fairness of process by which

organizational resources and outcomes are allocated. As

suggested by multi-foci justice research (e.g., Cropanzano

et al. 2002; Loi et al. 2009), the above two types of justice

perceptions are regarded as organization-focused, since the

resource allocation decisions and guidelines for procedures

are established and controlled by the organization. In

contrast, interpersonal justice, referring to the fairness of

interpersonal treatment when implementing procedures,

and informational justice, referring to the accuracy and

timeliness of explanations individuals receive, are more

supervisor-focused, since supervisors are most likely to

influence employees through daily interpersonal treatment

(Olkkonen and Lipponen 2006). Some researchers (e.g.,

Kirkman et al. 2009; Pillai et al. 1999) have argued that

leaders should have some crucial influences on employees’

perceptions of organization-focused justice (i.e., procedural

and distributive justice). As ethical leaders act as organi-

zation’s moral agents who maintain and promote the

compliance of ethical standard of the organization such as

fairness, one may expect that their behaviors have an

important role to play in affecting employees’ fairness

judgment regarding organizational procedures and out-

comes (Demirtas 2013; Li et al. 2012, 2014). In this study,

we examine these relationships by proposing trust in

organization as a key mediating mechanism.

Procedural justice is fostered when employee’s inputs

are taken into consideration during the decision-making

processes and when procedures are implemented with

consistency, bias suppression, accuracy, correctability,

representativeness, and ethicality (Leventhal 1980). Ethical

leaders convey their ethical expectations to employees

through an open two-way communication, listening to what

employees say, and asking ‘‘what is the right thing to do?’’

when making decisions (Brown et al. 2005). Their

emphasis on the adherence to organizational policies and

practices draw employees’ attention to the organization’s

fair procedures (Loi et al. 2012). In their study conducted

in China, Li et al. (2012) found that subordinates under

ethical leaders perceive greater procedural justice.

As highlighted by Bal et al. (2011), trust in organization

plays a central role in procedural justice evaluation in the

workplace. When employees develop their trust in orga-

nization based on ethical leadership behavior, they would

hold positive feeling regarding the motives and intentions

of the organization (Tyler 1994). Additionally, they may

have a strong belief that they would not be taken advantage

of (Pillai et al. 1999), and hence they tend to evaluate the

organization policy and practices in a positive manner

(Wong et al. 2012). Extant literature has consistently

shown that trust was a significant predictor of procedural

justice (e.g., Hoy and Tarter 2004; Lind et al. 1997).

Accordingly, we develop the following hypothesis:

Hypothesis 2 Trust in organization mediates the positive

relationship between ethical leadership behavior and pro-

cedural justice.

Distributive justice is fostered when appropriate norms

are employed in the allocation of resources or rewards

(Leventhal 1976). Ethical leaders set examples of how to do

things in the right way in terms of fair outcome distribution,

and they reward ethical behaviors and discipline unethical

behaviors in the organization (Gini 1998; Treviño et al.

2003). The way of using contingent rewards to support eth-

ical conduct is consistent with followers’ perceptions of

distributive justice. Trust in organization is critical for gen-

erating distributive fairness because it can reinforce the

perceptions of equity for employees (Tan and Tan 2000).

When people develop trust in organization based on ethical

leadership behavior, they will display positive attitudes and

perceptions toward the organization (Dirks and Ferrin 2001).

As long as employees trust their employing organization,

they are likely to have a strong feeling that it would serve

their best interests. Consequently, they tend to believe that

the organization will balance out the resources or rewards

based on their contributions over time (Konovsky and Pugh

1994). Previous research has provided evidence that trust

significantly shaped distributive justice perception of

employees (Mansour-Cole and Scott 1998; Tyler 1989,

1994). Consistent with these arguments and empirical find-

ings, we put forward the following hypothesis:

Hypothesis 3 Trust in organization mediates the positive

relationship between ethical leadership behavior and dis-

tributive justice.

Method

Sample and Procedures

We examined our hypotheses using a set of two-phase

survey data collected from employees working in one main

496 A. J. Xu et al.

123

branch of a Chinese-based bank in Macau. A total of 280

employees participated in the survey. In May 2010 (Time-

1), we distributed the first questionnaire to the participants

for rating their perceptions of immediate supervisors’ eth-

ical leadership behavior, and their own procedural justice

and distributive justice. Each questionnaire was attached

with a cover letter, which explains the purpose and vol-

untary nature of our survey. Anonymity and confidentiality

have been assured to the participants. Of the 280 ques-

tionnaires distributed, 186 completed questionnaires were

obtained, yielding a response rate of 66 percent. Three

months later (Time-2), we distributed the second ques-

tionnaire to these 186 respondents who have completed the

first questionnaire and asked them to assess their trust in

organization, procedural justice, and distributive justice. A

unique ID was assigned to each questionnaire to match the

responses of two phases. A total of 182 were finally

returned. After removing 6 cases which carried a lot of

missing data, the effective sample size for data analysis

was 176.

Among the respondents, 50 percent were male, and

29 percent aged between 33 and 37. Their average tenure was

5.83 years (SD = 3.84 years). Besides, 51 percent of them

had a bachelor degree or above. These respondents worked in

various departments of this branch, including personal

banking, electronic banking, risk management, clearing,

treasury, executive office, general affair, and operations.

Measures

We adopted all the measurement items from established

scales with sufficient validity and reliability. We also

conducted a back-translation process such that the mea-

surement scales were translated into Chinese and then

translated back into English (Brislin 1970). Except for the

demographic variables, all study variables were measured

on a six-point Likert-type scale with anchors ranging from

1 (‘‘strongly disagree’’) to 6 (‘‘strongly agree’’).

Ethical Leadership Behavior

We used the 10-item scale developed by Brown et al.

(2005) to assess employees’ perceptions of ethical leader-

ship behavior. This scale has also been adopted by previous

major studies on ethical leadership conducted in China

(e.g., Liao et al. 2014; Liu et al. 2013b; Loi et al. 2012;

Newman et al. 2014; Wu et al. 2013; Yang and Liu 2014).

Respondents were asked to rate the extent to which they

agree with the statements describing their immediate

supervisor’s behavior. Sample items are ‘‘Disciplines

employees who violate ethical standards’’, and ‘‘Conducts

his/her personal life in an ethical manner’’. Cronbach’s

alpha for this scale was 0.85.

Trust in Organization

We measured employees’ trust in organization with the

7-item scale used by Robinson (1996). A sample item is

‘‘In general, I believe my employer’s motives and inten-

tions are good’’. Cronbach’s alpha for this scale recorded at

0.71.

Procedural Justice

We used the 7-item measure developed by Moorman

(1991) to assess employee procedural justice at both Time-

1 and Time-2. A sample item reads ‘‘In my organization,

procedures are designed to collect accurate information

necessary for making performance appraisal’’. Cronbach’s

alpha for this scale was 0.84 at Time-1 and 0.72 at Time-2,

respectively.

Distributive Justice

We used the six items developed by Price and Mueller

(1986) to measure employee distributive justice at both

Time-1 and Time-2. One sample item is ‘‘I am fairly

rewarded for the amount of effort I put forth’’. Cronbach’s

alpha for this scale was 0.78 at Time-1 and 0.70 at Time-2,

respectively.

Analytical Strategy

Structural equation modeling (SEM) via LISREL 8.70 was

employed to test the hypotheses. All model tests were based

on the covariance matrix and used maximum likelihood

estimation. We first estimated the fit of the measurement

model using confirmatory factor analysis (CFA) and then

evaluated the fit of the structural models. Overall model fit

was examined by various fit indices, including root mean

square error of approximation (RMSEA), incremental fit

index (IFI), Tucker-Lewis index (TLI), and comparative fit

index (CFI). The requirements of a reasonable model fit are

met if RMSEA is below 0.08 (Browne and Cudeck 1993) and

IFI, TLI, and CFI are above 0.90 (Bentler and Bonett 1980;

Byrne 1998; Tucker and Lewis 1973).

To examine the mediating effects as hypothesized, we

simultaneously tested the significance of both the path from

the independent variable (i.e., ethical leadership behavior)

to the mediator (i.e., trust in organization), and the paths

from the mediator to the two outcomes (i.e., procedural and

distributive justice) (James et al. 2006). Specifically, we

estimated two nested structural models: a fully mediated

model and a partially mediated model derived from the

fully mediated model by adding two additional direct effect

paths from the independent variable to the two outcome

variables. In order to partial out the effect of Time-1

Ethical Leadership and Organization-Focused Justice 497

123

procedural justice on Time-2 procedural justice and the

effect of Time-1 distributive justice on Time-2 distributive

justice, both procedural and distributive justice measured at

Time-1 were controlled in the two models. We further

adopted bootstrapping (Preacher and Hayes 2008) to

examine the statistical significance of the indirect effect of

ethical leadership behavior on these two forms of justice

via trust in organization.

Results

Descriptive Statistics

Table 1 provides the means, standard deviations, and cor-

relations among all the variables at Time-1 and Time-2. As

expected, ethical leadership behavior was positively cor-

related with employees’ trust in organization (r = 0.33,

p \ 0.01), procedural justice (r = 0.26, p \ 0.01), and distributive justice (r = 0.30, p \ 0.01). In addition, trust in organization also had significant positive correlations

with both procedural justice (r = 0.35, p \ 0.01) and dis- tributive justice (r = 0.33, p \ 0.01).

Measurement Model Analysis

The results of the CFAs on the measurement model are

presented in Table 2. Our baseline measurement model is a

four-factor model, including ethical leadership behavior,

trust in organization, procedural justice (Time-2), and dis-

tributive justice (Time-2). We compared this baseline model

with several alternative models. As shown, among all the

measurement models, the four-factor baseline model

achieved a better model fit in terms of all the fit indices, with

v2(399) = 610.58; RMSEA = 0.052; CFI = 0.92; IFI = 0.92; and TLI = 0.91. The significant chi-square

change between each alternative model and the baseline

model indicated that the respondents in our study could

distinguish the four constructs well. The standardized factor

loadings are all acceptable and significant on the respective

constructs (Hou et al. 2004). In addition, we also conducted

Anderson and Gerbing’s (1988) paired construct test

(Table 3) and followed Fornell and Larcker’s (1981)

approach to compare the average variance extracted of each

construct with the corresponding squared inter-construct

correlation estimates. Results of these analyses lend further

support for our constructs’ discriminant validity.

Structural Model Analysis

The results of the fully mediated model (as shown in Fig. 1)

show a good model fit: v2 (852) = 1206.87; RMSEA = 0.042; CFI = 0.93; IFI = 0.93; and TLI = 0.92. Although

the fit indices for the partially mediated model also achieved a

similar model fit (v2 (850) = 1,204.81; RMSEA = 0.042; CFI = 0.93; IFI = 0.93; and TLI = 0.93), adding the two

direct paths from ethical leadership behavior to the two types

of justice did not significantly reduce the chi-square value

(Dv2 (2) = 2.06, ns). Therefore, the fully mediated model was accepted based on the principle of parsimony.

Hypotheses Testing

As depicted in Fig. 1, all the path coefficients estimated in

the fully mediated model were significant and in the pre-

dicted direction. In support of hypothesis 1, ethical leader-

ship behavior was positively related to employees’ trust in

organization (c = 0.43, p \ 0.01). In addition, employees’ trust in organization had significant and positive relation-

ships with both procedural justice (b = 0.35, p \ 0.01) and distributive justice (b = 0.40, p \ 0.01), even when Time-1 justice levels had been controlled. We further employed

bootstrapping (Hayes 2009) to test the statistical significance

of these indirect effects. Based on our sample, we conducted

the bootstrapping procedure (Preacher and Hayes 2008) with

20,000 random samples using a 95 % confidence level. The

point estimate for the indirect effect of ethical leadership

behavior on procedural justice via trust in organization was

0.06 (95 % confidence interval: 0.02, 0.12), whereas the

point estimate for the indirect effect of ethical leadership

behavior on distributive justice through trust in organization

was 0.08 (95 % confidence interval: 0.03, 0.15). Since the

95 % confidence intervals of both indirect effects did not

contain zero (Preacher and Hayes 2008), we conclude that

trust in organization acts as a mediator between ethical

leadership behavior and the two justice perceptions. Con-

sidering the above results together, hypotheses 2 and 3 have

gained support.

Discussion

The present study investigates how ethical leadership

behavior influences employees’ justice perceptions toward

their organization as well as evaluates the role played by

trust in organization. Specifically, our results indicate that

trust in organization acts as a mediator in the relationships

between perceived ethical leadership behavior and the two

types of organization-focused justice (i.e., procedural and

distributive justice). The findings provide several important

theoretical and practical implications.

Theoretical Implications

First, this study sheds new light on the investigation of eth-

ical leadership and organizational justice. While most

498 A. J. Xu et al.

123

previous studies (e.g., Brown et al. 2005; Neubert et al. 2009)

linked ethical leadership to the interactional forms of justice,

we go one step forward to examine why and how ethical

leadership could affect employees’ organization-focused

justice perception. The results of our study are important

because organization-focused justice, as compared to

supervisor-focused interactional justice, can better predict

organization-oriented outcomes (Akremi et al. 2010; Ol-

kkonen and Lipponen 2006). Our study also empirically tests

the proposition suggested by some researchers that ethical

leaders are the major sources of organizational fair proce-

dures and outcomes (Cropanzano and Rupp 2002). Specifi-

cally, we found that perceived ethical leadership behavior

significantly affect employees’ procedural justice through

generating their trust in organization. Neubert et al. (2009)

contended that listening to subordinates and executing fair

decision making are the two important behaviors of ethical

leaders in fostering and maintaining procedural justice. Our

findings show that subordinates working under ethical

leadership develop more trust in their organization, and in

turn they evaluate the organizational procedures and pro-

cesses in a more favorable manner.

Second, it has been pointed out that people in organi-

zation often pay close attention to the fairness of resource

allocation (Treviño 1992). Our results reveal that

employees under ethical leadership display more trust in

Table 1 Means, standard deviations, and correlations among the variables

Variables Mean SD 1 2 3 4 5 6

Time-1

1 Ethical leadership behavior 3.45 0.78 (0.85)

2 Procedural justice 3.88 0.77 0.14 (0.84)

3 Distributive justice 3.83 0.77 0.33** 0.32** (0.78)

Time-2

4 Trust in organization 3.16 0.66 0.33** 0.24** 0.17* (0.71)

5 Procedural justice 3.34 0.66 0.26** 0.48** 0.28** 0.35** (0.72)

6 Distributive justice 3.35 0.72 0.30** 0.09 0.32** 0.33** 0.23** (0.70)

Notes: Correlations based on two-tailed tests

Values shown in parentheses are reliability coefficients

n = 176

** p \ 0.01; * p \ 0.05

Table 2 Results of confirmatory factor analysis of the measurement models

Models v2 (df) Dv2 (Ddf) RMSEA CFI IFI TLI

1-Factor model a

918.08 (405)** 307.50 (6)** 0.100 0.81 0.81 0.79

2-Factor model b

721.57 (404)** 110.99 (5)** 0.073 0.88 0.88 0.87

3-Factor model 1 c

644.24 (402)** 33.66 (3)** 0.061 0.91 0.91 0.90

3-Factor model 2 d

663.63 (402)** 53.05 (3)** 0.068 0.90 0.90 0.89

4-Factor model (baseline) 610.58 (399)** – 0.052 0.92 0.92 0.91

Notes: ** p \ 0.01; Chi-square difference tests were conducted between the baseline model and each alternative model a In the 1-factor model, all items were loaded on one factor

b In the 2-factor model, items of trust in organization, procedural justice, and distributive justice were loaded on one factor

c In the 3-factor Model 1, items of trust in organization and procedural justice were loaded on one factor

d In the 3-factor Model 2, items of procedural justice and distributive justice were loaded on one factor

Table 3 Results of paired construct test

v2 (df) (unconstrained model)

v2 (df) (constrained model)

Dv2 (Ddf)

EL-

trust

235.54 (118) 423.52 (119) 187.98 (1)**

EL-PJ 176.80 (118) 380.35 (119) 203.55 (1)**

EL-DJ 188.79 (103) 358.29 (104) 169.50 (1)**

PJ-DJ 78.11 (64) 226.83 (65) 148.72 (1)**

Trust-

PJ

186.34 (76) 377.37(77) 191.03 (1)**

Trust-

DJ

122.05 (64) 347.00(65) 224.95 (1)**

Notes: EL = ethical leadership, Trust = trust in organization, PJ =

procedural justice, and DJ = distributive justice

** p \ 0.01

Ethical Leadership and Organization-Focused Justice 499

123

their organization and feel more confident that organiza-

tion’s rewards are allocated equitably. This finding is

aligned with Lewicki et al.’s (2005) argument that, when

employees decide to trust the organization based on the

standard of what is ‘‘right’’ and ‘‘appropriate’’ for them,

they would perceive a higher level of distributive justice.

Moreover, Yukl and Van Fleet (1992) suggested that

leadership behavior of using contingent rewards would

promote favorable perception of distributive justice. Our

study provides empirical evidence that ethical leadership

behavior enhances distributive justice perception through

engendering employees’ trust in organization.

Third, our study highlights the importance of the trusting

relationship between employees and their employing orga-

nization. Trust in organization acts as a vital mechanism

through which ethical leadership behavior transmits into

employees’ organization-focused justice. Our results indi-

cate that ethical leadership behavior is a significant catalyst

of employees’ trust in organization, which empirically

echoes Whitener et al.’s (1998) contention that leaders’

behavior provides the foundation for trust. When followers

perceive their leaders as ethical, they are likely to develop

more trust in their organization, and hence evaluate the

organization’s procedures and outcomes more favorably.

Finally, the present study also responds to the call of

Coyle-Shapiro and Shore (2007) for addressing the align-

ment of interests between managers and the organization.

Our findings show that ethical leader is the type of leader

who could help employees to make sense of their rela-

tionships with the organization. Employees will attribute

the good treatment of ethical leaders as originating from

the organization, thereby reacting positively (i.e., in terms

of trust and justice perception) toward it. In this regard, our

results are consistent with some emerging evidence that

ethical leadership could nurture employees’ positive atti-

tudes toward the organization, such as organizational

commitment and organizational identification (e.g.,

Demirtas and Akdogan 2014; Yang and Liu 2014).

Implications for Practice

The findings of our study obviously reinforce the practical

value in promoting ethical leadership behavior across the

organizations. Employers may find it fruitful to select and

cultivate more ethical leaders, who are able to initiate

employees’ trust and subsequently enhance fair perceptions

toward the organization. To do so, organizations should

firmly hold their ethics codes and hire leaders with high

moral intensity (Brown and Treviño 2006). In addition,

employers should also train the managers about the

importance of maintaining ethical standards and behaviors.

Leaders are encouraged to proactively provide ethical

guidance and demonstrate genuine concern for their sub-

ordinates. For example, to promote procedural justice

perception, the content of leadership training may empha-

size how to encourage or listen to employees’ opinions and

engage them in organizational decision-making processes.

The training content should also underscore the proactive

use of reward systems and disciplinary measures to

enhance distributive justice perception.

Moreover, our results also suggest leaders’ ethical (and

unethical) conduct observed by employees will trigger their

thinking of whether or not to trust the organization. To

generate employees’ trust in organization, not only should

leaders be ‘‘moral managers’’ (e.g., infuse the organization

with ethical principles and hold employees account for

that), but they should also be ‘‘moral persons’’ (e.g., be

honest and caring) who cope with ethical dilemmas with

Fig. 1 LISREL results for the fully mediated model.Notes:

Standardized path estimates

were reported; **p \ 0.01

500 A. J. Xu et al.

123

normatively appropriate behaviors. With a reputation of

ethical leadership, managers can establish trusting rela-

tionships with employees and foster their favorable justice

perceptions toward the organization.

Limitations and Avenues for Future Research

Several limitations of our study should be acknowledged.

First, although we used a two-wave studydesign, we have not

measured trust in organization at Time-1 and hence we are

not able to control for its possible effect on trust in organi-

zation at Time-2. Besides, we did not assess ethical leader-

ship behavior at Time-2, and thus reverse causality cannot be

completely ruled out. Future research may re-affirm our

findings by controlling the effect of trust in organization at

Time-1 and using cross-lagged modeling design.

Second, even though we attempted to separately mea-

sure the independent and dependent variables, the threat of

common method bias could not be totally eliminated,

because trust in organization and the two justice percep-

tions were measured at the same time. To deal with this

issue, we used positive affectivity as a marker variable to

assess whether or not the coefficients obtained from the

hypothesized model have been biased (Podsakoff et al.

2003). The results show that the overall pattern of our

hypothesized relationships was not much affected and the

new model with the marker variable achieved a similar

model fit with our hypothesized model. Nevertheless, it is

desirable to collect data of the mediator and the dependent

variables at different time points. Additionally, information

about ethical leadership behavior should be gathered from

ethical leaders’ supervisors or peers, rather than from the

subordinates, so as to avoid self-report bias.

Third, we have not obtained information from the

company regarding employees’ reporting channel and

organizational hierarchy, as well as whether or not the

respondents have changed their supervisors at Time-2.

Future studies should investigate the possible multi-level

relationships among study variables. In particular, with

more information collected at different levels, researchers

could explore whether executive ethical leadership and

supervisory ethical leadership influence organization-

focused outcomes at a varying degree.

Fourth, we collected the data only in one industry and in

one Asian city, which may limit the generalizability of our

findings to other settings. Future research could explore

whether the relationships identified in the present study can

also be found in other industrial and cultural contexts. Resick

et al. (2011) identified six dominant ethical leadership

themes (i.e., accountability, consideration and respect for

others, fairness, character, collective orientation and open-

ness) across six societies, and their study suggested that some

of these themes may be more dominant in one particular

culture than the other. In view of this, it would be meaningful

for future research to validate our findings across countries

with different foci on ethical leadership behavior.

Furthermore, the role played by cultural variables in

affecting how employees react to their leaders’ ethical

behavior is worth further investigation. For example, Liu

et al. (2013a) found that Chinese employees holding high

traditional values reacted more favorably to leaders’ ethical

behaviors in terms of job performance and organizational

citizenship behavior. It follows that traditional Chinese

employees may be more sensitive to leaders’ ethical con-

duct, and have more positive evaluation of organization-

focused justice.

Conclusion

Ethical leaders are unique moral agents representing the

interests of the organization. By addressing the question of

why and how ethical leadership affects employees’ per-

ceptions of procedural and distributive justice, this study

has advanced our understanding of the crucial role of

ethical leadership in fostering employees’ organization-

focused justice through generating their trust in organiza-

tion. It also points to the importance of nurturing ethical

leaders to create a trusting and fair workplace. Given our

new findings, we hope to inspire more research to evaluate

the impacts of ethical leadership on other organization-

referenced outcomes, as well as to explore the possible

mechanisms underlying the relationships.

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