The Moderating Effect of Human Resource Management on the Relationship Between Ethical Leader and Employee Trust

MASTER THESIS HUMAN RESOURCE STUDIES

The moderating effect of Human Resource Management on the relationship between ethical leader and employee trust

Student name : A.K.H.O. (Karim) Ressang Student ANR : 48 65 19

Name of supervisor : dr. K. Kalshoven Name 2nd reader : dr. R.S.M. de Reuver Project period : January – August 2014 Project theme : Interplay between HRM and Leadership

Table of contents Page

Abstract 3 1. Introduction 4 2. Theoretical framework 6 2.1 Ethical leadership and employee trust 6 2.2 Employee cognitive and affective trust 8 2.3 HRM as moderator in ethical leadership and trust relationships 9 2.4 The mediating role of cognitive based trust 10 2.5 Moderating HRM and mediating cognitive trust 11 3. Methods 11 3.1 Research set-up 11 3.2 Procedure 12 3.3 Sample characteristics 13 3.4 Measures 14 3.5 Statistical analysis 17 4. Results 19 4.1 Correlations 19 4.2 Regression analysis 22 4.2.1 Further analysis 28 5. Discussion 28 5.1 Theoretical implications 29 5.2 Limitations and strengths 31 5.3 Practical implications 32 5.4 Conclusion 33 6. Reference 34 Appendix A: Further analysis 41 A1. Examination of partial correlation 41 A2. Testing the significance of difference between correlation coefficients 42 A3. Reviewing disconfirmation H2a, H2b and H4 42 Appendix B: Factor analysis 44

Abstract

This research examines the link between ethical leadership, human resource management (HRM) and employee cognitive and affective trust in the leader. Drawing on the definition and description of how ethical leadership effectuates (Brown, Treviño & Harrison, 2005), leader trustworthiness (Mayer, Davis and Schoorman, 1995) and the idea of situational conditions inhibiting the influence of ethical leaders (Kerr & Jermier, 1978), in combination with research findings on cognitive trust and affective trust, this research expected that employee trust in the leader would be affected by developments in the domain of HRM. In total six hypothesis were tested with questionnaire data from 140 respondents. The results show spurious relationships between cognitive and affective trust and between HRM and both forms of trust. The results also show that ethical leadership is positively related to employee cognitive and affective trust and that HRM does not play a significant role in the relationship between ethical leader and employee trust in the leader. Theoretical and practical implications of the results are discussed.

Keywords: ethical leadership, human resource management, employee cognitive and affective trust in the leader.

1. Introduction Ethical leadership is “one of the hot topics” in organizational practice (Eisenbeiss, 2012, p.791) now that ethical scandals have highlighted the topic of ethical management (Traviño, Weaver & Reynolds, 2006) and have raised important questions about the role of leadership in shaping ethical conduct (Brown, Treviño & Harrison, 2005). Ethical leaders are thought to be uniquely important for organizations because they are expected to influence employees to behave in an ethical and positive manner (Kalshoven, Den Hartog, & de Hoogh, 2011; Brown & Traviño, 2006). Research on ethical leadership demonstrates the organizational importance of ethical leadership and positively associates it with various desired employee behaviors, such as: job performance (e.g. Piccolo, Greenbaum, Den Hartog & Folger, 2010; Walumbwa, Mayer, Wang, Wang, Workman, & Christensen, 2011), organizational citizenship behaviors (e.g. Newman, Kiazad, Miao, & Cooper, 2013; Mayer, Kuenzi, Greenbaum, Bardes, & Salvador, 2009; Avey, Palanski & Walumbwa, 2011; Kacmer, Bachrach, Harris, & Zivnuska, 2011; Ruiz-Palomino, Ruiz-Amaya, & Knörr, 2011; Kalshoven, et al., 2011) and innovative behaviors (e.g. Yidong & Xinxin, 2012). Research also indicate that ethical leaders treat employees in a fair and respectful way and receive positive evaluations from employees (Brown, et al. 2005). Ethical leaders are expected to create trustful work environments (De Hoog & Den Hartog, 2008; Weaver, Treviño & Agle, 2005). In particular, the research of Newman, et al., (2013) demonstrate that the relationship between employee perception of ethical leadership and employee organizational citizenship behavior, is explained by the effects of employee trust in the leader. The ‘Substitutes for Leadership Theory’, postulates that leader effectiveness on subordinate outcomes varies with different situational factors (Kerr & Jermier, 1978). A situational factor may inhibit the influence of ethical leaders and thus also the build-up of employee trust. Human Resources Management (HRM), defined as “the process of managing work and people in organizations” (Boxall, Ang, & Bartram, 2011, p. 1504), can be regarded as such a situational factor. This is reflected in the research of Kalshoven and Boon (2012). In their investigation of follower helping behavior as an outcome of a HRM- moderated relationship between employee well-being and ethical leadership, Kalshoven and Boon (2012) find significant evidence that “the relationship between ethical leadership and helping occurs through well-being only when HRM was low, but not when HRM was high” (p. 60). In other words, both HRM and ethical leadership raises well-being, but not simultaneously. High HRM apparently constrains the impact of ethical leadership on well- being.

The combining of the research findings of Newman, et al., (2013) with the research findings of Kalshoven and Boon (2012) provides the basis for further exploration in this research. Using the idea of situational factors suppressing the influence of leadership on employee outcomes, as forwarded by the ‘Substitutes for Leadership Theory’ (Avolio, Walumbwa, & Weber, 2009; Posakoff, MacKenzie, & Bommer, 1996), this research models the element of employee trust in the leader as the result of the attributes of the ethical leader and posits that employee trust, as part of the ethical leader-employee relationship, is affected by developments in the domain of HRM. In other words, it is argued that ethical leadership positively relates to employee trust in the leader when HRM is low rather than high. When both ethical leadership and HRM are high, it is argued that employee’s perception of HRM will substitute employee perception of ethical leadership on trust. This research is guided by the following research question: To what extent is the relationship between ethical leader and employee trust in the leader, moderated by HRM?

The research model integrates current insights of HRM-effects on the relationship between ethical leader and employee behavior with current knowledge about the effects of trust that underlies the ethical leader-employee relationship. The examination adds to the HRM and ethical leadership literature in general and more specifically to the still “sparse literature investigating HR activities and trust” (Whitener, 1997, p. 393). The practical relevance, of examining the effects of HRM on the relationship between ethical leader and employee trust, lies in the contribution to a more detailed mapping of the possible HRM effect on the psychological mechanisms that underlie employee behavior in organizational setting. Workers with low levels of trust may not be productive or behave in an appropriate way (Gillespie & Dietz, 2009; Cook & Wall, 1980). Knowledge of the effects of HRM on employee trust in the relationship with the ethical leader can be of use in the development of alternative HRM practices that facilitate ethical leadership in an optimal and complementary way and, thereby, enhance organizational desired employee behavior. The answer to the research question is sought at employee-level for two reasons. First, employee work behavior originates from affective, cognitive and/or behavioral reactions that are elicited by individually processed employee perceptions of ethical leadership and HRM (Wright & Nishii, 2007; Den Hartog, Boselie, & Paauwe, 2004). Second, scholars have stressed the need for research focusing on employee-centered outcomes (i.e. Nishii, Lepak, &

Schneider, 2008) and on explanatory mechanisms linking ethical leadership to follower behaviors (i.e. Mayer, Aquino, Greenbaum & Kuenzi, 2012).

The layout of the remainder of this paper consists of five more parts. In the next part, a description is given of both the variables in question and their model-based relationship, together they constitutes the theoretical framework of this research. In the subsequent third part, an outline of the method used in this paper’s research is given by means of short explanations of the research set-up, procedure, sample characteristics, measures instruments and statistical analysis. The outcome of correlation and regression analyses are presented in part four. In the final part, the outcomes are discussed in view of their theoretical implications, the limitations and strengths of this research, followed by its practical implications and conclusion. In part six, a reference is given to literature used in this research. In appendix A: Further analysis, details, results and explanation are provided of additional analysis on the four main variables. In appendix B: Factor analysis, the outcomes are provided of this research’s factor analysis.

2. Theoretical framework

2.1 Ethical leadership and employee trust The antecedents of ethical leadership may, arguably, be traced back to scholarly discussions on the existence of some moral foundation in the intent and actions of leaders’ usage of their social power (e.g. Gini, 1997; Kanungo, 2001) and in leadership styles such as authentic and pseudo transformational leadership (e.g. Bass, & Steidlmeier, 1999; Barling, Christie, & Turner, 2008), socialized and personalized charismatic leadership (e.g. Howel, & Avolio, 1992), spiritual leadership and authentic leadership (e.g. Avolio & Gardner, 2005; Gardner, Avolio, Luthans, May, & Walumbwa, 2005; May, Chan, Hodges, & Avolio, 2003; Sparrowe, 2005). Brown, et al., (2005), do not focus on the intent or motivation of ethical leaders (Stouten, Van Dijke, & De Cremer, 2012) and center on the behavior of the leader to define ethical leadership as: “the demonstration of normative appropriate conduct through personal actions and interpersonal relationships, and promotion of such conduct to followers through two-way communication, reinforcement, and decision-making” (Brown, et al., 2005, p. 120). Kalshoven et al., (2011) distinguishes seven ethical leader behaviors: “fairness, people

6 orientation, role clarification, ethical guidance, environment orientation, power sharing and integrity” (p. 54, Table 1). In work-settings ethical leadership is expected to relate to employee trust through employee perceptions of the trustworthiness of the leader. Mayer, Davis, and Schoorman (1995) and Simmons (2002), argue that leader’s trustworthiness is dependent on employee perceptions of three leader characteristics: ability, benevolence and (behavioral) integrity. Colquitt, Scot, and Lepine (2007), summarize leader’s ability as the perception that an employee has of the set of the leader’s skills, knowledge and competence that is needed to do the specific leadership job. Ability also includes employee perceptions of the leader’s interpersonal skills and general wisdom to succeed in the organization (Colquitt et al., 2007; Mayer et al., 1995). Leader’s benevolence is the employee perception of a positive orientation of the leader towards the employee. It is the extent to which the leader is believed to want to do good for the employee apart from any profit motives and includes synonyms such as loyalty, openness, caring and supportiveness (Colquitt et al., 2007; Mayer et al., 1995). Employee perception of leader’s (behavioral) integrity is the observable and positive alignment between the leader’s words as a moral person and the leader’s deeds and actions as a moral manager (Simons, 2002; Treviño, Hartman, & Brown, 2000; Treviño, Brown, & Hartman, 2003). The employee is expected to perceive the leader as moral manager when the leader serves as a visible role model for ethical conduct. As such, the leader communicates regularly and persuasively with the employee about ethical standards, principles, and values. In addition, as a moral manager, the leader uses the reward system consistently to hold the employee accountable to ethical standards (Treviño et al., 2000). The leader being perceived by the employee as a moral person constitutes the substantive basis of ethical leadership (Brown et al., 2005; Treviño et al., 2000; Mayer et al., 1995). The employee is expected to perceive the leader as a moral person when the employee thinks of the traits, behaviors and decisions of the leader as being authentically based upon ethical principles. Employee perceptions of the leader as being consistent, credible and predictable in leader-employee relationships, points towards stable personal characteristics of the leader and adds to the trustworthiness of the leader (Simmons, 2002;Treviño et al., 2000). In sum, leaders who are considered by employees to be able, benevolent and who behave ethically consistent and keep promises, are likely to be believed and trusted by employees (Colquitt et al., 2007; Mayer et al., 1995; Schoorman, Mayer, & Davis, 2007; Simons, 2002; Treviño et al., 2000). This fundamental theme is elaborated on in this research.

2.2 Employee cognitive and affective trust Interpersonal trust between employees and leaders within a work-environment is highly important for the long-term stability of the organization (e.g. Gillespie & Dietz, 2009; Cook & Wall, 1980). In this research employee trust in the leader is considered as a psychological state (Kramer, 1999), that may serve as a starting point for employee risk taking in the relationship with the ethical leader and which, in turn, may lead employees to behave in an ethical and positive manner (Mayer, et al., 1995, Schoorman, et al., 2007; Colquitt, et al, 2012; Mayer et al., 2009; Cropanzano & Mitchel, 2005). Employee trust in the leader is affected not only by employee perceptions of the trustworthiness of the leader but also by the employee’s general willingness or propensity to trust (Mayer et al., 1995; Schoorman, et al., 2007). The latter may also be based on experiences within a given relationship and on norms established by institutions and/or society (Lewicki & Wiethof, 2000). McAllister (1995, p. 25) defines interpersonal trust as “the extent to which a person is confident in, and willing to act on the basis of, the words, actions, and decisions of another” and identifies two principal forms of interpersonal trust: one of which is character-based or cognitive in nature and the other is relational in nature, respectively labeled cognitive trust and affective trust (McAllister, 1995; Dirks & Ferrin, 2002) Employee cognitive trust develops on the basis of an instrumental assessment by the employee of the salient personal traits of the ethical leader, such as: integrity, competence, reliability and dependability (Schaubroeck, Lam, & Peng, 2011; Newman et al, 2013). Cognitive based trust is described as “trust-from-the-head” (Chua, Ingram & Morris, 2008, p. 437). Stated differently, cognitive trust is determined by the employee’s assessment of the leader’s ability to fulfill obligations and, therefore, the demonstration of reliability and dependability (Aryee, Budhwar & Chen, 2002). In addition, research by Yang, Mossholder, and Peng (2009), points to cognitive trust as necessary for task-oriented processes. As ethical leaders display power sharing (De Hoog, & Den Hartog, 2008) and role clarification (Kalshoven, et al., 2011), which are task-oriented behaviors, it is expected that employee perceptions of ethical leadership will relate positively to follower cognitive trust in the leader. This leads to the following hypotheses: H1a Ethical leadership is positively related to employee cognitive trust

Employee affective trust develops on the basis of interpretation of emotional connection between the employee and ethical leader in a relationship that results from the

8 mutual showing of care and concern (Yang, & Mossholder, 2010; Dirks, & Ferrin, 2002; McAllister, 1995). Affective based trust is described as “trust-from-the-heart” (Chua, et al. 2008, p.437) and is engendered by ethical leader’s genuine concern about the employee’s well-being and the resulting strengthening of their relational bond (Brown et al., 2005). In addition, Yang, et al., (2009) mentions that affective based trust “is more salient for relational aspects of supervisor-subordinate interactions” (p. 144). As ethical leaders have a true concern for people, act with integrity and treat others fairly, and have an environment orientation (Kalshoven, et al., 2011), which are social interaction-oriented behaviors, it is expected that employee perceptions of ethical leadership will relate positively to employee affective trust in the leader. This leads to the following hypotheses: H1b Ethical leadership is positively related to employee affective trust

2.3 HRM as moderator in ethical leadership and trust relationships

Human Resource Management (HRM) or “the process of managing work and people in organizations” (HRM definition Boxall, Ang, & Bartram, 2011, p. 1504), varies from organization to organization as Human Resources practices (HR-practices) are “part of the systems and processes that are expected to be consistent with [organizational] strategy” (Peck, 1994, p. 716) and may be influenced by internal and external factors, such as characteristics of the organization, demographics, its phase in the industry life cycle, government regulations and institutionalism ( Boxall & Purcell, 2011). HRM can be viewed as a collection of multiple, discrete HR-practices with no clear or apparent link between them, or “as an integrated and coherent ‘bundle’ of mutually reinforcing [HR-] practices” (Boselie, Dietz & Boon, 2005, p. 73). The latter is most effective (Huselid, 1995) as they are likely to include practices ensuring that employees have: required skills and abilities for performing their jobs (i.e., training and development), incentives that encourage employee motivation (i.e., appraisal and rewards), and an work environment that provides employees the opportunity to participate (i.e. in decision making ) and to perform (i.e. support and avenues for expression) (Boon, Den Hartog, Boselie, & Paauwe, 2011; Boxall, & Purcell, 2011; Boselie, et al., 2005; Appelbaum, Bailey, Berg, & Kalleberg, 2000). The originators of the ‘Substitutes for Leadership (SFL) Theory’(Kerr & Jermier, 1978) convey the suggestion that situational factors may create organizational conditions that substitute for leadership and make leadership unnecessary for employees (Schriesheim, 1997) or reduce employee reliance on their leader (Kerr, Schriesheim, Murphy, & Stogdill, 1974). In

9 addition, situational factors may also create organizational conditions that neutralize, weaken or even block the influence of the leader on employee outcomes (Schriesheim, 1997). The research findings of Kalshoven and Boon (2012), forwards the suggestion that HRM may lead to situational conditions that “virtually negate the leader’s ability to either improve or impair subordinate performance” (Howel, Bowen, Dorfman, Kerr, & Podsakoff, 1990, p. 23). In extending the SFL, it can be expected that ethical leadership is more strongly associated to employee trust in the leader when employees perceive low HRM than when employees perceive high levels of HRM. When employees perceive HRM to be low, HR practices are likely to be limited, and this will cause employees to turn to the ethical leader for assistance, counseling and emotional support and this may increase ethical leader’s influence on employee trust in the leader (cf. Kalshoven, & Boon, 2012). When employees perceive HRM to be high, HRM practices are likely to be extensive, and this may cause employees to trust HRM or organizational leadership rather than the ethical leader (Colquitt, Conlon, Wesson, Porter, & Ng, 2001, 2012; Dirks & Ferrin, 2002) and thereby decreasing ethical leader’s influence on employee cognitive and affective trust in the leader. This leads to the following two hypotheses: H2a HRM moderates the relationship between ethical leadership and employee cognitive trust in such way that the relationship between ethical leadership and employee cognitive trust is stronger when employee perception of HRM is low than when employee perception of HRM is high. H2b HRM moderates the relationship between ethical leadership and employee affective trust in such way that the relationship between ethical leadership and employee affective trust is stronger when employee perception of HRM is low than when employee perception of HRM is high.

2.4 The mediating role of cognitive based trust The work of McAllister (1995), Schaubroeck, et al., 2011; Schaubroeck, Peng & Hannah (2013) and Newman et al. (2013) find positive associations between cognitive trust and affective trust. In addition to this, McAllister (1995) and Lewicki and Bunker (1995;1996, in Newman et al.,2013) suggests that cognitive trust may serve as a prerequisite to the development of affective trust. Although research is preliminary, the idea that affective trust builds on a basis of cognitive trust, can be illustrated from the point of view that the relationships between leaders and employees develops not overnight, but in successive steps that also alters the social reality in which the leader-employee relationship is embedded

(Lewicki, & Wiethof, 2000; Lewicki, McAllister, & Bies, 1998). First, the ethical leader’s professionalism will act as a base for the employee to develop cognitive trust in the leader in a social reality that can be described as a “low trust-low distrust” situation (Lewicki et al., 1998, p. 445, Table 1, Cell 1), which may be considered typical for most new workplace relationships. Secondly, the ethical leader’s care and concern for the employee’s well-being fosters the development of additional employee affective trust in the leader and alters the relationship to a “high trust-low distrust” situation (Lewicki et al., 1998, p. 445, Table 1, Cell 2). This leads to the following hypothesis: H3 The positive relationship between ethical leader and employee affective trust is mediated by employee cognitive trust.

2.5 Moderating HRM and mediating cognitive trust Ethical leadership that builds up cognitive trust as a base for the development of affective trust (cf. McAllister, (1995); Lewicki, & Bunker, (1995;1996), in Newman, et al., (2013)) may be affected by employees perception of HRM. In extending the arguments developed in paragraph 2.3 HRM as moderator in ethical leadership and trust relationships, it may be expected that high employee perceptions of HRM will dampen the influence of the ethical leader on the build-up of employee cognitive trust in the leader (cf. Kalshoven, & Boon, 2010), thereby limiting the relationship to a predominantly “low trust-low distrust” social reality (Lewicki et al., 1998, p. 445, Table 1, Cell 1). Conversely, low employee perceptions of HRM can be expected to heighten ethical leader’s influence on the buildup of employee cognitive trust which may in turn develop employee affective trust in the leader, allowing the relationship to grow into a social reality of “high trust-low distrust” (Lewicki et al., 1998, p. 445, Table 1, Cell 2). This leads to the following hypothesis: H4 HRM moderates the positive relationship between ethical leadership and employee cognitive trust and in turn on employee affective trust such that the mediated relationship will be weaker under high HRM than under low HRM

3. Methods

3.1 Research set-up

The aim of this research is to evaluate the moderating effect of HRM on the relationship between ethical leader and employee trust. The research set-up is explanatory and directed at finding associations between HRM, ethical leader and cognitive and affective trust

11 in the leader. The research uses an on-line questionnaire to collect data and has a cross sectional design (i.e. data collected at single point in time). Participants in the research are available respondents who are willing to participate in a survey research, which predefines the group of respondents as a convenience sample (Baker, 1999). The study has an individual- level of analysis, i.e., employees. Four Master’s Thesis students cooperated in both assembling and distributing the questionnaire. The 13-page questionnaire is in the Dutch language and made up of 110 questions from twelve sub-sets of questions, which are relevant to the research topic of one of the four students (i.e. the questionnaire also contained questions that are irrelevant for this research). The final version was pre-tested for ease of filling out and completion time. The sample size was targeted at 120 responses and was based on a combination of both practical/ realistic expectations and ‘rules of thumb’ given by different authors. The afore mentioned four students each expected to be able to bring in a minimum of 30 responses. A sample size of 120 respondents fits the different guidelines concerning the number of responses required for multiple regression (Stevens (1996); Tabachnick and Fidell (2007) in Pallant, (2010). This study, with two independent variables, aiming to detect a medium effect size at power of .80 and alpha of .05, needs a minimum of 67 respondents (Cohen, 1992, Table 2, p. 158).

3.2 Procedure

Participants were targeted in the Dutch social and/or professional network(s) of each student. Prospect respondents needed to be employees with either a limited or unlimited (Dutch) labor contract and occupy a job position that reported to a supervisor, regardless of their position in the organization’s hierarchy, the type of business or sector of industry. The targeting excluded top level management reporting to the board of directors and self- employed professionals. Each student distributed the questionnaire electronically using opensource software called ‘Survey Monkey’. Respondents were approached via social media, such as Facebook and LinkedIn and via e-mail and were requested to fill-out their questionnaire electronically. Respondents were informed about the goal, the approximate filling out time of 20 – 25 minutes and given the assurance that their information would be used for research purpose only and would not be distributed to any third party. When a prospect respondent did not

12 react, the request was repeated after seven days. For this reason a modest administration of the request date was set up.

3.3 Sample characteristics

In total 293 prospect respondents were contacted and asked to fill-out the questionnaire. A group of 156 people responded, which gives a response rate of 53%. Sixteen respondents aborted the survey program prematurely, i.e. before finishing. This act has been interpreted as the respondents change of mind to participate. Their unfinished responses were removed. A total of 140 responses were included in this research. The youngest respondent was 16 and the oldest was 59 years old. The average age of respondents was 34.9 years (SD = 12.53); 56.4% or 79 persons were male. The level of education was: University degree (25.7%), Higher vocational education (40.7%), Pre- university education (7.9%), Higher general secondary education (6.4%), Intermediate vocational education (17.1%) and Preparatory Secondary Vocational Education (2.1%). Higher education (i.e. University degree and Higher vocational education) was reported by 66.4% of the respondents. The average tenure of respondents was 5.49 years (SD = 6.27), the lowest tenure was one month and the longest tenure was 34 years and 7 months. Most respondents, 76.1% or 94 persons, were working under an unlimited labor contract, while 32.9% or 46 persons, had a labor contract of limited duration. The average contracted work hours per week was 30.56 hours (SD = 12.88), with 7.1% or 10 respondents reporting to have a so called a zero-hour labor contract, while 40% or 56 respondents reported to be contracted for 40 hours per week. The sample does not reflect the composition of the Dutch workforce, as compared to information given by the Dutch Central Bureau for Statistics (CBS, available from http://Statline.cbs.nl). This research is aimed to find explanatory relationships and did not intent to achieve representativeness and has for that reason made use of a convenience sample (Baker, 1999). However, comparing this research sample with data from CBS, gives the following overview. The average age in sample is 34.9 years, in 2013 the Dutch workforce average age was 41.7 years. In this research sample, 56.4% is male, in Dutch work force 79,66% is male. The level of education in Dutch workforce is categorized in only three groups: 36.25% High (that is university degree and HBO, in this sample it is 66.4%), 43.69% Middle (that is pre-university education, higher general secondary education and intermediate vocational education, in this sample it is 31.4%) and 20.06% Low (that is preparatory

13 secondary vocational education, in this sample it is 2.1%). The average contracted work hours in the Dutch work force is 34.3 hours per week, in this sample it is 30.56 hours. In the Dutch work force 79.66% have a labor contract for unlimited duration, in this sample it is 76.1%. In the Dutch work force 20.34% have flexible work hours, in this sample this is 7.1%. In sum, respondents in this research’s sample tend to be younger in age, higher educated, work less hours, have fewer labor contracts for unlimited duration and less flexible work hours than in the Dutch work force.

3.4 Measures

This research deploys instruments/ scales that have been used in research of Kalshoven and Boon (2012) and Newman, et al., (2013). In order to reconfirm their deployability for this study, Principle Components Analysis (PCA) was performed. The PCA was applied to re-establish the validity of the constructs of Ethical leader, HRM, Cognitive and Affective Trust, while the reliability of the scales was measured by means of Cronbach’s alpha and these were compared to those of previous studies.

Ethical Leadership

Ethical Leadership was measured by using the (translated into Dutch) 10-item Ethical Leadership (ELS) Scale (Brown, et al., 2005). Each item was rated on a 5-point Likert scale (1 = strongly disagree, 5 = strongly agree) with higher scores pointing to perceived ethical leadership. A sample item is: “…Conducts his/her [respondent’s leader] personal life in an ethical standard”. The PCA procedure revealed a significant (p < .001) Barlett’s test of sphericity, which is considered appropriate for factor analysis, and a Kaiser-Meyer-Olkin (KMO) measure of .912, which is well above the suggested minimum value of .6 for a good factor analysis (Tabachnick, & Fidell, 2007 in Pallant, 2010). The results of the PCA showed that all communalities were above .4 and that two factors had eigenvalues higher than one (λ >1.0). Visual inspection of the screeplot, however, indicated that one factor might also suffice. This factor accounted for 54.48% of the variance in the construct of Ethical Leadership. A PCA with extraction of just one factor, resulted in factor loading whereby all items loaded above .7. Only one item (“Disciplines employees who violate ethical standards”) had a factor load below .3.

The Cronbach’s α in previous Dutch study was .78 (Kalshoven, & Boon, 2012). In the current study, the scale reliability analysis revealed a Cronbach’s alpha of .898. However, one item (“Disciplines employees who violate ethical standard”) had a low (r < .3) correlation with the total score of the scale, indicating that the item might be measuring something different from the scale as a whole. Cronbach’s alpha could be raised .016 point (to .914) by deleting this item. However, as Nunnally (1978, in Pallant 2010) recommends a minimum level of .7, the item was not deleted for consideration of limited gain in an already sufficiently high Cronbach’s alpha. Based on the combination of both the findings that the one factor extraction sufficiently reflects the content validity and the Cronbach’s alpha of .898, the decision was made to deploy the scale unaltered.

Human Resource Management

HRM was measured by using (translated into Dutch) the 22-item HPWS scale developed by Lepak and Snell (2002). Respondents were asked to rate their perceptions of five HR practices in their workplace (job design, recruitment and selection, training and development, performance appraisal, and compensation). Each item is rated on a 5-point Likert scale (1 = strongly disagree, 5 = strongly agree) with higher scores pointing to perceived HRM. A sample item is: “These employees perform jobs that include a wide variety of tasks”. A (PCA) factor analysis revealed a significant (p >.001) Barlett’s test of sphericity and a KMO of .780. All communalities were above .4, indicating that the extracted factors accounted for a large portion of the variance. The PCA resulted in seven factors with eigenvalues greater than one (λ < 1.0). The first factor explained 26.0% of the variance, the second factor explained 8.26% of the variance, the third factor explained 6.84%, the fourth explained 6.16% and the fifth explained 5.67%. The sixth and seventh factors had eigenvalues barely bigger than one. The sixth factor explained 5.1% and the seventh factor explained 4.6% of the variance. Varimax and Oblimin rotations were conducted but this did not result in better fit or additional clarification. Nevertheless, based on visual inspection of screeplot and knowledge of successful previous research done with this scale (e.g. Kalshoven, & Boon, 2012; Lepak, & Snell, 2002; Takeuchi, Lepak, Wang & Takeuchi, 2007), an one factor extraction was performed on the HRM scale. The result showed that three items had factor loadings below .3 and that it explained 26% of the variance.

The Cronbach’s alpha in previous Dutch study was .84 (Kalshoven, & Boon, 2012). In the current study the scale reliability analysis revealed a Cronbach’s alpha of .843. However, the scale analysis also indicated that four items had a low correlation with the total score and this indicates that they may be measuring something different from the scale as a whole. In addition, Cronbach’s alpha could be raised by deleting three items. The deletion of item “These employees perform jobs that allow them to routinely make changes” would raise Cronbach’s alpha by .003 to 0.846; deletion of item “Compensation/rewards for these employees include employee stock ownership programs” would raise alpha by .009 to .0852; deletion of item “Compensation/rewards for these employees focus primarily on their short- term performance” would raise alpha by .007 to .850. Based on reputation of the scale and considerations of limited gain in an already sufficiently high Cronbach’s alpha, the items were not deleted. Relying on afore mentioned previous research and the sufficiently high scale reliability, the HRM scale was deployed unaltered.

Cognitive and Affective Trust

Affective and Cognitive Trust was measured by using the (translated into Dutch) McAllister’s (1995) affect-based and cognition-based trust scales, which deploys a 7-point Likert scale (1 = strongly disagree, 7 = strongly agree). This scale uses five items to measure affective-based trust and six items to measure cognitive-based trust. A sample item of affective-based trust scale (consisting of two sentences) is: “We [leader and respondent] have a sharing relationship. We [leader and respondent] can both freely share our ideas, feelings and hopes”. A sample item of cognitive-based trust scale is: “This person [the respondents’ leader] approaches his/her job with professionalism and dedication”. The Dutch translated items on cognitive and affective trust were successfully used before in unpublished work of Kalshoven. The PCA of the affective trust scale revealed a significant (p < .001) Barlett’s test of sphericity and a KMO of .804. All communalities were above .6 and visual inspection of the screeplot clearly showed a graph with just one factor (λ > 1.0). The one factor PCA extraction explained 68% of the variance. The PCA of the cognitive trust scale revealed a significant (p < .001) Barlett’s test of sphericity and a KMO of .834. The item “If people knew more about this individual and his/her background, they would be more concerned and monitor his/her performance more closely”, scored .435. All other communalities were above .7. Visual inspection of the

16 screeplot showed a graph with just one factor (λ > 1.0) and the one factor PCA extraction explained 63% of the variance. In previous research in Chinese language, the Cronbach’s alpha for affect-based trust was .88. The Cronbach’s alpha for cognitive-based trust in the same research was .91 (Newman, et al., 2013). The current study measured a Cronbach’s alpha for affective trust of .880 and a Cronbach’s alpha for cognitive trust of .864. In the affective trust scale all items correlated above .3 and no item, if deleted, would cause the Cronbach’s alpha to rise above its current level. In the cognitive trust scale, the item “If people knew more about this individual and his/her background, they would be more concerned and monitor his/her performance more closely”, did not correlate above .3 with the scale as a whole. The deletion of this item would raise Cronbach’s alpha by .041 to .905. Considering the limited gain in an already sufficiently high Cronbach’s alpha, the item was not deleted. Both, the affective trust scale and the cognitive trust scale, were deployed unaltered.

Control variables

In order to control for potential confounding effects, questions on the following respondent demographics were added to the questionnaire: age in years, gender (1 = male, 2 = female), education level (1 = University degree, 2 = Higher vocational education, 3 = Pre- university education, 4 = Higher general secondary education, 5 = Lower secondary education, 6 = Intermediate vocational education and 7 = Other education), tenure in years and type of labor agreement (1 = unlimited labor agreement contract, 2 = limited contract). These controls are used often in the HRM, ethical leadership and trust literature (e.g. Tzafrir, Harel, Baruch & Dolan, 2003; Zhu, Newman, Miao, & Hooke, 2013; Purcell, & Hutchinson, 2007; Blunsdon, & Reed, 2003; Mayer, et al., 2009).

3.5 Statistical analysis

To test the hypotheses, multiple regression analysis is applied. In order to avoid multicollinearity effects in predictor, moderator variables and interaction terms, the main variables ethical leadership, cognitive and affective trust, HRM and the control variables were standardized (Frazier, Tix & Barron, 2004). The strength of (significant) Pearson correlation (r) is interpreted as: small (r = .10 to .29); medium (r = .30 to .49) and large (r = .50 to 1.0), as suggested by Cohen (1988, p. 79-81).

Hypothesis 1a and 1b, concerns models of direct effects (Frazier, et al., 2004). Testing hypothesis 1a, cognitive trust is regressed on ethical leadership in a regression in which control variables are entered simultaneously with the predictor variable ethical leadership. Testing hypothesis 1b, affective trust is regressed in similar way as in testing hypothesis 1a. A significant (p < .05) positive relationship between ethical leadership and cognitive and affective trust is required to confirm both hypotheses, as indicated by Beta (β). Hypothesis 2a and 2b, concerns models of moderator effects (Frazier, et al., 2004). Testing hypothesis 2a, cognitive trust is regressed on ethical leadership, HRM and the product term representing the interaction between ethical leadership and HRM. Regression step 1 is entering the control variables; step 2 ethical leadership and in step 3 HRM. In step 4 the product term between ethical leadership and HRM, is added. Testing hypothesis 2b, affective trust is regressed in similar steps as in testing hypothesis 2a. In order to confirm hypotheses 2a and 2b, the interaction term should show a significant (p < .05) relationship with respectively cognitive or affective trust (Baron, & Kenny, 1986). In addition, when interaction is suspected, a simple slope analysis will be used to ensure correct interpretation of both interaction effects. Hypothesis 3, concerns a model of a mediator effects (Frazier, et al. 2004). Testing hypothesis 3, a multiple regression analysis is performed in three analysis using the method described by Baron and Kenny (1986). First, a multiple regression analysis is performed between the control variables and independent variable ethical leadership on the mediator cognitive trust. Second, a multiple regression analysis is performed between the control variables, the independent variable ethical leadership on the dependent variable affective trust. Third, a multiple regression analysis is performed between control variables, the independent variable ethical leadership and the mediator variable cognitive trust on the dependent variable affective trust. In order to confirm hypotheses 3, the following conditions must hold: (1) a positive and significant (p < .05) association, as indicated by β, is required in the relationship between ethical leadership and cognitive trust. (2) Ethical leadership must be shown to affect the dependent variable affective trust. (3) Cognitive trust must affect the dependent variable affective trust, whereby the effect of ethical leadership on affective trust is less in the third analysis than in the second analysis (Baron & Kenny, 1986). Hypothesis 4 concerns a model “combining mediation and moderation” (Baron & Kenny, 1986, p. 1179) or a moderated mediation model (James & Brett, (1984), in Baron & Kenny, 1986). Testing hypothesis 4, a multiple regression analysis of three steps is performed. First, the control variables, the independent variable ethical leadership, the moderator variable

HRM are entered into the regression. Second, the product term representing the interaction between ethical leadership and HRM is entered as a variable. Third, the mediator variable cognitive trust is added to the regression model. In order for hypothesis 4 to be confirmed, the regression coefficient of the variable representing the product term between ethical leadership and HRM, must be decreased or have become non-significant (p > .05) when the mediator variable cognitive trust is added to the model. Moreover, the mediation variable cognitive trust must be associated positively and significantly (p < .05) to the dependent variable affective trust (Baron & Kenny, 1986). When these conditions are observed then the effect of the moderated mediation model is not disconfirmed. The above described method of testing a moderated mediation model by analyzing outcomes of three regressions, in which moderation and mediation are treated separately, “suffer from various methodological problems that seriously undermine their utility” (Edwards & Lambert, 2007, p. 2). Nevertheless, this study adheres to the Baron and Kenney (1986) method as the use of (multilevel) structural equation modeling, reduced form equations and/or the use of Mplus (Kalshoven, et al,. 2012) or Process macro for SPSS (Preacher, Rucker & Hayes, 2007; Hayes, 2013) are regarded to fall outside the scope of this research.

4. Results

4.1 Correlations

The means, standard deviations and correlations of the ten variables are presented in Table 1. The medium and positive relationship between HRM and (work)hours (r = .41, p < .01) suggests that HRM is perceived better (scores higher) by people who are contracted to more hours. The medium, positive and significant correlation between HRM and ethical leader (r = .47, p < .01, are in line with expectations. A positive relationship between affective and cognitive trust and ethical leadership (respectively (r = .70, p < .01) and (r = .77, p < .01)) is found, as expected. In addition, affective and cognitive trust have also a medium and positive relationship with HRM (respectively (r = .39, p < .01) and (r = .38, p < .01)). Affective and cognitive trust have a large and positive correlation (r = .62, p < .01), suggesting that those forms of trust are related.

The large and positive correlation between age and tenure (r = .57, p < .01), suggests that older workers have longer tenure. The medium and negative relationship between age and contract (r = -.33, p < .01), suggests that older people tend to have permanent contract of

19 employment (i.e. not limited in time). The small and positive correlation between age and work hours (r = .29, p < .01), suggests that older people may have more contracted work hours than younger people. The medium and negative relationship between gender and hours (r = -.32, p < .01), suggest that more work hours tend to be reported by males. The small and positive relationship between gender and ethical leader (r = .17, p < .05) suggest that woman may have higher perceptions of their leader being ethical than men. This also applies to the small and positive relationship between gender and cognitive trust (r = .20, p < .05). It suggests that woman may have more cognitive trust in their leader than men. The medium and negative correlation between tenure and contract(type) (r = -.47, p < .01), suggests that longer tenure tends to be based on an permanent contract of employment. General conclusion based on Table 1, is that control variables mostly correlate with other control variables and not so much with the main variables and, vice versa, the main variables have correlations with other main variables but not so much with control variables.

Table 1. Means, standard deviations (SD) and correlations (r)

N Mean SD r

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. Age 140 34.92 12.53 -

2. Gender (1 = male, 2 = female) 140 1.44 .50 -.15* -

3. Education 140 2.70 1.75 -.02 .03 -

4. Tenure 140 5.50 6.27 .57** -.09 .14* -

5. Contract (1 = indef., 2 = def.) 140 1.33 .47 -.33** .15 -.12 -.47** -

6. Hours (0 – 40) 140 30.56 12.88 .29** -.32** -.03 .14 -.10 -

7. Ethical Leader 140 3.80 .67 .10 .17* -.03 .06 .03 .11 -

8. HR management 140 3.25 .43 .05 .06 -.03 .06 .09 .41** .47** -

9. Affective trust 140 4.85 1.23 .13 .06 .02 .13 -.09 .11 .70** .39** -

10. Cognitive trust 140 5.37 1.09 .06 .20** -.14 .07 .04 .13 .77** .38** .62** -

Note: **. Correlation is significant at the 0.01 level (2-tailed), *. Correlation is significant at the 0.05 level (2-tailed)

4.2 Regression analysis

In line with the method described in section 3.5 Statistical analysis, multiple regression analysis was applied to evaluate the hypotheses. The results are presented in tables 2 to 6 and discussed accordingly.

Hypotheses H1a

Hypotheses H1a stated that ethical leadership is positively related to employee cognitive trust. The results are presented in Table 2. There were no indications for (multi)collinearity (i.e. tolerance value well above .10 and VIF value well below 10). The control variables in Model 1 explained 11% of the variance in cognitive trust. The addition of ethical leadership raised the explained variance significantly to 51% (F = 177.545, p < .01). In addition, Model 2 shows that ethical leadership is significantly related to cognitive trust (β = .742, p < .01). The results confirm hypotheses H1a.

Table 2. The relationship between ethical leadership and cognitive trust Cognitive trust regressed Cognitive trust regressed on control variables on control variables and ethical leadership Model 1 Model 2

Age -.015 -.076 Gender .270** .097 Education -.150 -.132* Tenure .116 .084 Contract .046 .004 Hours .206 .087 Ethical leadership .742**

R2 .110* .620 ΔR2 .511** F 2.726* 30.802** ΔF 177.545**

Note: **p < .01, *p < .05; N = 140; Standardized coefficients are presented

Hypotheses H1b

Hypotheses H1b stated that ethical leadership is positively related to employee affective trust. The results are presented in Table 3. There was no indication of a (multi)colinearity problem. Model 1, containing the control variables, did not regress significantly on affective trust. Model 2 was significant (F = 19.184, p < .01) and explained 50.4% of the variance in affective trust. Ethical leadership in Model 2 has a significant and positive relationship with affective trust ((β = .706, p < .01). The results confirm hypotheses H1b.

Table 3. The relationship between ethical leadership and affective trust Affective trust regressed Affective trust regressed on control variables on control variables and ethical leadership Model 1 Model 2

Age .062 .004 Gender .114 -.050 Education .006 .023 Tenure .075 .045 Contract -.036 -.076 Hours .117 .003 Ethical leadership .706**

R2 .041 .504** ΔR2 .463** F .943 19.184** ΔF 123.421**

Note: **p < .01, *p < .05; N = 140; Standardized coefficients are presented

Hypotheses H2a

Hypotheses H2a stated that HRM moderates the relationship between ethical leadership and employee cognitive trust in such a way that the relationship between ethical leadership and employee cognitive trust is stronger when employee perceptions of HRM is low than when employee perceptions of HRM is high. The results are presented in Table 4, in which Model 1 and Model 2 are the same as in Table 2. The tolerance value remained well above .10 and the VIF value remained well below 10 (i.e no (multi)collinearity problems). Model 3 and Model 4 in Table 4, show that the addition of both HRM and the interaction term, did not result in a significant change in explaining the variance in cognitive trust (Model 3, HRM β = -.019, n.s.; Model 4, HRM β = - .016, n.s.; Interaction term β = .015, n.s.). The results do not confirm hypotheses H2a.

Table 4. The relationship between ethical leadership, HRM, the interaction term and cognitive trust Model 1 Model 2 Model 3 Model 4 Cognitive trust Cognitive trust Cognitive trust Cognitive trust regressed on control regressed on control regressed on control regressed on control variables variables and ethical variables, ethical variables, ethical leadership leadership and HRM leadership, HRM and interaction term

Age -.015 -.076 -.079 -.080

Gender .270** .097 .099 .099

Education -.150 -.132* -.132* -.132*

Tenure .116 .084 .086 .086

Contract .046 .004 .006 .006

Hours .206* .087 .095 .095

Ethical leadership .742** .749** .753**

HRM -.019 -.016

Eth. leadership x HRM .015

R2 .110* .620** .620 .621

ΔR2 .511** .000 .000

F 2.726* 30.802** 26.774** 23.637**

ΔF 177.545** .078 .068

Note: **p < .01, *p < .05; N = 140; Standardized coefficients are presented

Hypotheses H2b

Hypotheses H2a stated that HRM moderates the relationship between ethical leadership and employee affective trust in such a way that the relationship between ethical leadership and employee affective trust is stronger when employee perceptions of HRM is low than when employee perceptions of HRM is high. The results of the multiple regression are presented in Table 5. Model 1 and Model 2 are the same as in Table 3. The tolerance value remained well above .10 and the VIF value remained well below 10, indicating no problems with collinearity. In Table 5, Model 3 and Model 4 show that the addition of both HRM and the interaction term, did not result in a significant change in explaining the variance in cognitive trust (Model 3, HRM β = .10, n.s.; Model 4, HRM β = .093, n.s.; Interaction term β = -.035, n.s.). The results do not confirm hypotheses H2b.

Table 5. The relationship between ethical leadership, HRM, the interaction term and affective trust Model 1 Model 2 Model 3 Model 4 Affective trust Affective trust Affective trust Affective trust regressed on control regressed on control regressed on control regressed on control variables variables, ethical variables, ethical variables, ethical leadership leadership and HRM leadership, HRM and interaction term

Age .062 .004 .017 .019

Gender .114 -.050 -.060 -.060

Education .006 .023 .024 .024

Tenure .075 .045 .033 .034

Contract -.036 -.076 -.087 -.087

Hours .117 .003 -.041 -.040

Ethical leadership .706** .666** .657**

HRM .100 .093

Eth. leadership x HRM -.035

R2 .041 .504** .510 .511

ΔR2 .463** .006 .001

F .943 19.184** 17.070** 15.122**

ΔF .943 123.421** 1.631 .283

Note: **p < .01, *p < .05; N = 140; Standardized coefficients are presented

Hypotheses H3

Hypotheses H3 stated that the positive relationship between ethical leadership and employee affective trust is mediated by employee cognitive trust. The results from the multiple regression is presented in Table 6. First, cognitive trust was regressed on ethical leadership and control variables. Second, affective trust was regressed on control variables and ethical leadership. Third, affective trust was regressed on the control variables, ethical leadership and cognitive trust. There were no indications of problems with multicollinearity. The results of the first analysis reconfirmed the positive and significant relationship between ethical leadership and cognitive trust (β = .742, p < .01). The results of the second analysis shows a positive and significant relationship between ethical leadership and affective trust (β = .706, p < .01). The result of the third analysis shows a positive and significant relationship of both ethical leadership (β = .542, p < .01), and cognitive trust (β = .222, p < .05) and affective trust. The decrease of ethical leadership (from β = .706 to β = .542) has been tested for significance by performing a Sobel test (Baron & Kenny, 1986), resulting in Sobel test statistic of 2.232, with a one-tailed probability of 0.012 and a two-tailed probability of 0.025. The results show partial mediation and partially confirm hypotheses H3.

Table 6. The relationship between ethical leadership, cognitive trust and affective trust Cognitive trust regressed on control Affective trust regressed on control variables, ethical leadership variables and ethical leadership and cognitive trust Model 1 Model 2 Model 3 Model 4 Model 5

Age -.015 -.076 .062 .004 .021

Gender .270** .097 .114 -.050 -.071

Education -.150 -.132* .006 .023 .052

Tenure .116 .084 .075 .045 .026

Contract .046 .004 -.036 -.076 -.077

Hours .206 .087 .117 .003 -.016

Ethical leadership .742** .706** .542**

Cognitive trust .222*

R2 .110* .620** .041 .504** .523*

ΔR2 .511** .463** .019*

F 2.726* 30.802** .943 19.184** 17.951**

ΔF 2.726* 177.545** .943 123.421** 5.125*

Note: **p < .01, *p < .05; N = 140; Standardized coefficients are presented

Hypotheses H4

Hypotheses H4 stated that HRM moderates the positive relationship between ethical leadership and employee cognitive trust and in turn on employee affective trust such that the mediated relationship will be weaker under high HRM than under low HRM. The results are presented in Table 7. There were no problems with multicollinearity. In model 1, only ethical leadership has a positive and significant relationship with affective trust (β = .666, p < .01). The addition of the interaction term in Model 2, did not bring a significant change: ethical leadership remained positive and significant ( β = .657, p < .01), while all other variables do not have a significant relationship with affective trust. Model 3 reconfirmed the already revealed relationship between ethical leadership (β = .486, p < .01), cognitive trust (β = .226, p < .05) with affective trust, but did not show a significant relationship involving HRM or the interaction term. The results do not confirm hypotheses H4.

Table 7. The relationship between ethical leadership, HRM, their interaction term and cognitive trust on affective trust Model 1 Model 2 Model 3 Affective trust Affective trust Affective trust regressed on control regressed on control regressed on control variables, ethical variables, ethical variables, ethical leadership and HRM leadership, HRM leadership, HRM, and interaction term interaction term and cognitive trust

Age .017 .019 .038 Gender -.060 -.060 -.082 Education .024 .024 .054 Tenure .033 .034 .015 Contract -.087 -.087 -.088 Hours -.041 -.040 -.061 Ethical leadership .666** .657** .486** HRM .100 .093 .097 Eth. leadership x HRM -.035 -.039 Cognitive trust .226*

R2 .510** .511 .531* ΔR2 .001 .019* F 17.070** 15.122** 14.598** ΔF 17.070** .283 5.339* Note: **p < .01, *p < .05; N = 140; Standardized coefficients are presented

4.2.1 Further analysis

The outcomes of the regression analysis, especially the ones in which the moderating influences of HRM have been disconfirmed, have given rise to a more detailed examination of the (statistical) relationships between the four main variables of this research, i.e. ethical leadership, HRM, cognitive and affective trust. The testing and the results are presented in Appendix A: Further analysis. The outcome of the additional analysis is included in the discussion section of this paper, which follows next.

5. Discussion

This research concerned 140 Dutch employees participating in a survey research examining the moderating effect of HRM on the relationship between ethical leader and employee trust in the leader. Drawing on the definition and description of how ethical leadership effectuates and the idea of leader trustworthiness in combination with research findings on cognitive trust and affective trust, hypothesis 1a posited that ethical leadership would be positively related to employee cognitive trust. Hypothesis 1a was supported by the results. Hypothesis 1b, stated that ethical leadership would be positively related to employee affective trust. The results confirmed hypothesis 1b. The ensuing hypothesis 2a and 2b, were based on ‘Substitutes for leadership (SFL) Theory’ and hypothesized that (employee perceptions of) HRM would moderate both the relationship between ethical leadership and employee cognitive trust (hypothesis 2a) as well as the relationship between ethical leadership and employee affective trust (hypothesis 2b). In both cases the effect of ethical leadership on either cognitive or affective trust, did not seem to depend on HRM and this result disconfirmed both hypothesis 2a and 2b. Hypothesis 3, was based on the idea that cognitive trust may be essential for the development of affective trust and hypothesized that the positive relationship between ethical leadership and employee affective trust is mediated by employee cognitive trust. The results partially confirmed hypothesis 3. Hypothesis 4, was again based on SFL and examined employee cognitive trust as a mediator in the positive relationship between the interaction of ethical leadership and HRM and employee affective trust. Hypothesis 4 was not supported by the results. The additional examination of partial correlation and the testing of statistical significance of the difference of correlation coefficients between the four main variables, has led to the finding of spurious relations between cognitive and affective trust and HRM and both forms of trust. In summary, the outcomes of this research show that ethical leadership positively relates to employee cognitive

28 and affective trust in the leader, and that HRM does not play a significant role in this trust relationship.

5.1 Theoretical implications

This research builds on the work of both Kalshoven and Boon (2012) and Newman, et al., (2013). The latter showed that the relationship between ethical leader and employee outcome was mediated by trust, while the former showed that a comparable relationship was moderated by HRM. The results from this research contribute to both the trust and HRM literature and is a response to the call of scholars who have stressed the need of research focusing on employee-centered outcomes (i.e. Nishii, et al., 2008) and on explanatory mechanisms linking ethical leadership to employee behaviors (i.e. Mayer, et al., 2012). This research contributes by means of its attempt to clarify the relationship between HRM, ethical leadership and employee cognitive and affective trust in the leader.

The results show that ethical leadership is positively related to employee’s cognitive trust [H1a] and this is consistent with other research findings in the trust literature (e.g. Newman et al.,(2013); Eisenbeiss, 2012; Schaubroeck et al., 2011; McAllister, 1995). As such the results fall within the broader frame work of ethical leadership as described by Brown and Treviño (2006) and Brown et al., (2005), and adds to the idea that ethical leadership and associated actions, induces employees to view their leader as dependable, reliable and of integrity (Eisenbeiss, 2012), which in turn may lead employees to develop cognitive trust in the leader (Schaubroeck et al., 2011; McAllister, 1995). Ethical leadership is also confirmed to relate positively to employee affective trust [H1b]. This result is also consistent with other research findings (e.g. Newman et al., 2013; Eisenbeiss, 2012; Schaubroeck et al., 2011; McAllister, 1995) and it adds to the line of reasoning that ethical leadership is likely to direct the employee to view the leader as being concerned about his/her well-being. This, in turn, strengthens their relational bond whereby the employee engenders higher levels of affective trust in the leader (cf. Newman et al., 2013; Yang et al., 2009). At this point it is appropriate to note that this research had a cross-sectional design. Mann (2003, p. 57) states that “cross sectional studies are used to determine prevalence, [and] do not permit distinction between cause and effect [as there are often] a number of plausible explanations”. This means that although the directionality of the relationships tested in this research were based on, and also supported by, literature on ethical leadership, HRM and

29 cognitive and affective trust, reversed causality cannot be ruled out. Therefore, the findings in this research, that ethical leadership positively relates to employee cognitive and affective trust in the leader does not exclude the possibility of other mechanisms or directionalities, such as: trusting employees fostering ethical behavior in leaders, or ethical leadership simultaneously evoking cognitive and affective trust. The idea that cognitive trust may be essential for the development of affective trust [H3] was based on preliminary research findings (Lewicki & Bunker 1995, 1996 in Newman et al., 2013). At first instance, the results in this research seem to confirm partial mediation (Sobel test: p < .05) and this would partially add to the idea that a leader may benefit from both displaying ethical professionalism and acting in a caring way. As the former may induce cognitive trust leading to a leader-employee relationship characterized by a “low trust-low distrust” type of social reality, while the latter may foster the additional development of affective trust which might enable the leader-employee relationship to evolve to a “high trust- low distrust” type of social reality (cf. Lewicki et al, 1998; McAllister,1995). However, more detailed examination of the relationship between the main variables revealed that the relationship between cognitive and affective trust is a spurious one; disqualifying the relevance of this finding.

The finding of spurious relationships in this research between cognitive trust and affective trust and between HRM and both forms of trust, underline survey outcomes that “clearly indicate that the formation of trust within workplace relationships is complex and elusive” (Zeffane, & Connel, 2003. P. 4). The spurious relationships in this research have two main implications. First, the spurious relationship between cognitive trust and affective trust and spurious relationships between HRM and both trust forms, frustrate the formulation of a satisfying answer to the research question. In fact, this research shows that the relationship between ethical leader and employee cognitive and affective trust in the leader, is more statistically intertwined than previously theorized. As for now, it must be concluded that no evidence found in this research that shows that the relationship between ethical leader and both forms of employee trust in the leader is moderated by HRM. Second, the spurious relationships show that although the line-up of variables may make sense from a theoretical point of view, it is also important to consider the analytical tools. Newman, et al., (2013), using the same measurement instruments as in this research (i.e. ELS (Brown et al., 2005) and Affect and cognition based trust scales (McAllister, 1995), was able to differentiate between ethical leadership, affective and cognitive trust. However, in

30 contrast with this research that used multiple regression analysis, Newman, et al., (2013) deployed LISREL and structural equation modeling (SEM). In the same line of reasoning, Kalshoven and Boon (2012) applied multilevel analyses, multilevel structural equation modeling and MPlus to successfully examine their theoretical model. Future research is invited to examine the possibility to test the moderating influence of HRM on the relationship between ethical leader and employee cognitive and affective trust in the leader, with these statistical techniques.

5.2 Limitations and strengths

The manner this research has been executed harbors both strength and limitations. The main strengths are that the participating respondents were approached effectively and within a relatively short time period by means of social media and via the social- and professional networks of four different researchers. This resulted in twice the number of responses necessary to detect a medium effect size at power of .80 and alpha of .05 (Cohen, 1992, Table 2, p. 158). In addition, the respondents were given the assurance that their information would be used for research purpose only and that it would not be distributed to any third party. This may have encouraged respondents to participate and be honest and open in their responses.

This research has also several limitations that deserve notice. In assembling the questionnaire, insufficient attention has been given to the additional usage of control variables, that is their usability besides their role to control for potential confounding effects. For example, questions on job content, job position in the organization’s hierarchy and the type of business, could have provide information that would have facilitated additional analysis. Also, this research was set-up cross-sectional and made use of a convenience sample, this limits any statements or conclusions about causality and the direction of the relationships (Mann, 2003), but also about generalizability. Issues of generalizability become apparent when considering that the request to participate, the dispersion, filling out and return of the questionnaires happened electronically. This has led to an unilateral group of respondents that can be differentiated by their propensity that they can be reached by social media and their computer literacy. These characteristics may not be representative for Dutch employees and restricted the generalizability of any finding to this group. Similarly, respondents were targeted in the social- and professional networks of researchers, which may have caused the group of respondents to mainly consist of highly educated employees, which also limits generalizability of any finding to this group. Lastly, the respondents provided

31 information on all three variables based on self-reports using a questionnaire wherein all of the data was collected in the same measurement context. This practice, in which the data for both the predictor and criterion variable are obtained from the same person in the same measurement context using the same item context and similar item characteristics, is likely to produce particularly powerful method biases, such as: social desirability, acquiescence, motif of consistency and implicit theories. Method biases are a main source of measurement error (cf. Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). Future research should work around these limitations, for example by measuring intended and actual (ethical and trusting) behavior, the addition of an additional source of information such as the supervisor of the ethical leader, collecting independent and dependent variables at different times, the use of leader-employee dyads and applying longitudinal design, which can assist in finding causal relationships and randomization of the sample of respondents which can improve generalizability of findings.

5.3 Practical implications

The results have important practical implications. The finding of spurious relations point to a high degree of intertwinement between ethical leadership and employee trust in the leader. Employee trust, within the relationship between ethical leader and employee, may serve as a psychological basis leading employees to behave in an ethical and positive manner. The relationship between ethical leader and employee trust in the leader is not affected by HRM. In principle, HRM may develop and be perceived in any way necessary to effectuate organizational strategy. However, it may be practical for organizations striving to be an ethical work environment to first implement and communicate, a ‘code of ethics’, which can be used as both a guidebook for business policies in general and more specific for HR- policies regarding hiring, appraising/developing/promoting and dismissing members of the organization. In hiring new employees, or promoting already employed workers, organizations may want to use selection/promotion methods at multiple levels of employment that include assessments of integrity, moral standards, and concern for others. For the development of ethical conduct, organizations may want to invest in ethics training programs that teaches management and supervisors how to improve ethical behavior (cf. Mayer et al., 2009). However, besides a code of ethics and training programs, it is also important that the organization focuses on creating situational factors or organizational conditions, that serve to enhance (Schriesheim, 1997), rather than substitute or neutralize, the influence of ethical

32 leaders on subordinate outcomes. This can be done by implementing HR-practices that facilitate effective ethical leadership (for example, possibilities for leader to reward/sanction) in especially front-line managers with direct supervisory responsibilities. The latter is important, because immediate supervisors are the lens through which employees see what the organization values (Mayer et al., 2009).

5.4 Conclusion

Corporate scandals have raised concerns about ethics and leadership in the work environment. This research has addressed the relationship between HRM, ethical leader and employee trust. Workers with low levels of trust may not be productive or behave in an appropriate way. The results contribute to the trust literature as now more detailed knowledge of the relationship between HRM, ethical leadership and employee trust is available for both future research and the development of alternative HR practices that facilitate ethical leadership, which can make this world a trustworthy and thus a better place.

6. Reference

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Appendix A: Further analysis

A1. Examination of partial correlation

As presented earlier in Table 1, page 21, the relationships between ethical leadership, HRM, cognitive trust and affective trust, the main variables in this research, are indicated to have significant medium to large (zero order) correlations (Cohen, 1988). In order to get a clearer and more accurate indication of the relationships between these four variables, partial correlation was applied to combinations of three relationships covering all possible combinations between these four variables. The results are presented in Table Appendix 1. Partial correlation.

Table Appendix 1. Partial correlation Observed relationship: Zero order Controlled for Partial Difference correlation var.3 correlation between Variable 1 Variable 2 Variable 3 between between zero order var. 1 & var.1 & and partial var. 2 var. 2 correlation

Ethical leadership HRM Affective trust .47** Affective trust .30** .17 HRM Affective trust Ethical leadership .39** Ethical leadership .09N.S. .30 Affective trust Ethical leadership HRM .70** HRM .64** .06

Cognitive trust Ethical leadership HRM .77** HRM .72** .05 Ethical leadership HRM Cognitive trust .47** Cognitive trust .30** .17 HRM Cognitive trust Ethical leadership .38** Ethical leadership .04N.S. .34

Affective trust Cognitive trust Ethical leadership .62** Ethical leadership .17*. .45 Cognitive trust Ethical leadership Affective trust .77** Affective trust .60** .17 Ethical leadership Affective trust Cognitive trust .70** Cognitive trust .45** .25

HRM Affective trust Cognitive trust .39** Cognitive trust .21** .18 Affective trust Cognitive trust HRM .62** HRM .55** .07 Cognitive trust HRM Affective trust .38** Affective trust .20** .18

Note: **. Correlation is significant at the 0.01 level (1-tailed). *. Correlation is significant at the 0.05 level (1-tailed). N = 140

The large significant differences between the zero order correlation and partial correlation of the observed relationship between two variables in a tripartite relationship, signal that the relationship is (partially) influenced by the third variable (Pallant, 2010). Conversely, small differences signal that the relationship between two variables is not or only to a limited extend, influenced by the third variable. As shown in bold in Table Appendix 1, the partial correlation in relationships in which ethical leadership is controlled for, becomes not significant (p<.01) different from zero. These are the relationships between: (a) HRM – Affective trust, (b) HRM – Cognitive trust, and (c) Affective trust – Cognitive trust. This means that the apparent relationships between affective and cognitive trust, but also the relationship between HRM and cognitive and affective trust, are spurious relationships. They correlate due to the influence of ethical leadership. The finding of spurious relationships is double checked by testing the significance between correlation coefficients.

A2. Testing the significance of difference between correlation coefficients

In order to examine whether the correlation coefficients of the relationships between the four main variables are significantly different from each other, tests were performed on combinations of three relationships covering all possible combinations between these four variables. These tests were done by making use of the web utility: “Calculation for the test of the difference between two dependent correlations with one variable in common" (Lee, & Preacher, 2013; available from http://quantpsy.org. ). This web utility tests the equality of two correlation coefficients obtained from the same sample, with the two correlations sharing one variable in common. The results of the calculation with the web utility (Lee, & Preacher, 2013) are presented in Table Appendix 2.

Table Appendix 2. Significance of difference between correlation coefficients (rounded) Observed relationship: Output rjk rjh rkh z-score 1-tail p 2-tail p

EL/HR (.47) EL/AT (.70) HR/AT (.39) -3.36 0.00 0.00 EL/AT (.70) EL/CT (.77) AT/CT (.62) -1.58 0.06 0.11 EL/CT (.77) EL/HR (.47) CT/HR (.38) 4.72 0.00 0.00

HR/EL (.47) HR/AT (.39) EL/AT (.70) 1.37 0.09 0.17 HR/AT (.39) HR/CT (.38) AT/CT (.62) 0.15 0.44 0.88 HR/CT (.38) HR/EL (.47) CT/EL (.77) -1.74 0.04 0.08

AT/EL (.70) AT/HR (.39) EL/HR (.47) 4.66 0.00 0.00 AT/HR (.39) AT/CT (.62) HR/CT (.38) -3.02 0.00 0.00 AT/CT (.62) AT/EL (.70) CT/EL (.77) -1.94 0.03 0.05

CT/EL (.77) CT/HR (.38) EL/HR (.47) 6.30 0 0 CT/HR (.38) CT/AT (.62) HR/AT (.39) -3.16 0.00 0.00 CT/AT (.62) CT/EL (.77) AT/EL (.70) -3.49 0.00 0.00 Note: N = 140, EL = ethical leader, HR = HRM, AT = Affective trust, CT = Cognitive trust (. ) = zero order correlation

The results presented in Table Appendix 2, reveal that there is no significant (p<.01) difference in correlation between ethical leader and cognitive and affective trust. The results also show that there is no significant (p< .01) difference between the correlations, on one hand, HRM and ethical leadership and, on the other hand, HRM and cognitive trust or affective trust. There is also no significant (p<.01) difference between HRM and cognitive trust or affective trust. The results confirm the spurious relationships between cognitive and affective trust, HRM and cognitive and affective trust.

A3. Reviewing disconfirmation H2a, H2b and H4

The disconfirmation of H2a, H2b and H4, does not seem to be attributable to (multi) collinearity, the problem that arises when the independent variables are highly correlated.

First, the correlation between ethical leadership and HRM (r = .47) was not “at an excessively [r > .9] high level with one other” (Keith, 2006, p. 199). Second, in all regressions, the collinearity diagnostics remained distant from the cut-off points; tolerance remained well above .10 value and VIF remained well below the value of 10 (Pallant, 2010; Keith, 2006). The disconfirmation of hypothesis H2a, H2b and H4 is due to the spurious relationship between HRM and both forms of trust, created by the variable ethical leadership. This is illustrated by the outcome of regression analyses whereby the appearance of relationships between HRM and both trust forms, become not-significant when the variable of ethical leadership is included in the analysis.

As presented below, the creation and testing of a new variable Total trust (the aggregate of cognitive and affective trust), also underscores the spurious relationship between HRM and trust.

Table Appendix 3. Additional testing of partial correlation Observed relationship: Zero order Controlled for Partial Difference correlation var.3 correlation between Variable 1 Variable 2 Variable 3 between between zero order var. 1 & var.1 & and partial var. 2 var. 2 correlation

Ethical leadership HRM Total trust .47** Total trust .23** .24 HRM Total trust Ethical leadership .43** Ethical leadership .09N.S. .34 Total trust Ethical leadership HRM .82** HRM .77** .05

Note: **. Correlation is significant at the 0.01 level (1-tailed). *. Correlation is significant at the 0.05 level (1-tailed). N = 140

Appendix B: Factor analyses

Ethical leadership

Table 1. Ethical leadership. Factor analysis Scale Factor Factor One factor 1 2 extraction 8. Conducts his/her personal life in an ethical standard .561 .621 9. Disciplines employees who violate ethical standards .940 10. Discusses business ethics or values with employees .666 .352 .754 11. Listens to what employees have to say .860 .829 12. Has the best interests of employees in mind .855 .821 13. When making decisions, asks “what is the right thing to do” .734 .707 14. Defines success not just by results but also the way that they .708 .707 are obtained 15. Can be trusted .827 .828 16. Sets an example of how to do things the right way in terms of .834 .844 ethics 17. Makes fair and balanced decisions .844 .836 Eigenvalues 5.448 1.054 5.448 Total variance explained in percentages (%) 54.482 10.536 54.482 Cronbach’s alpha .898 NOTE: Factor loadings below .3 discarded Extraction Method: Principal Component Analysis/Oblimin Rotation

Human Resource Management (HRM)

HRM scale, shown below by number in Table 2:

23. These employees perform jobs that allow them to routinely make changes 24. These employees perform jobs that empower them to make decisions 25. These employees perform jobs that have a high degree of job security 26. These employees perform jobs that include a wide variety of tasks 27. These employees perform jobs that involve job rotation 28. The recruitment/selection process for these employees emphasizes promotion from within 29. The recruitment/selection process for these employees focuses on selecting the best all- around candidate, regardless of the specific job 30. The recruitment/selection process for these employees focuses on their ability to contribute to our strategic objectives 31. The recruitment/selection process for these employees places priority on their potential to learn (e.g., aptitude) 32. Our training activities for these employees are comprehensive 33. Our training activities for these employees are continuous 34. Our training activities for these employees require extensive investments of time/money 35. Our training activities for these employees seek to increase short-term productivity (R) 36. Our training activities for these employees strive to develop firm-specific skills/ knowledge

37. Performance appraisals for these employees are based on input from multiple sources (peers, subordinates, etc.) 38. Performance appraisals for these employees emphasize employee learning 39. Performance appraisals for these employees focus on their contribution to our strategic objectives 40. Performance appraisals for these employees include developmental feedback 41. Compensation/rewards for these employees focus primarily on their short-term performance (R) 42. Compensation/rewards for these employees include an extensive benefits package 43. Compensation/rewards for these employees include employee stock ownership programs (ESOP, etc.) 44. Compensation/rewards for these employees provide incentives for new ideas

Table 2. HRM. Factor analysis Scale (see Factor Factor Factor Factor Factor Factor Factor One HRM-scale 1 2 3 4 5 6 7 factor above) extraction 23. .433 .347 .516 24. .433 .382 .379 .443 .433 25. .359 -.461 .359 26. .510 .377 .442 .510 27. .492 .426 .492 28. .512 -.381 .512 29. .402 -.409 .402 30. .615 -.320 .615 31. .622 .622 32. .696 -.439 .696 33. .756 -.332 .756 34. 622 -.434 .622 35. .460 -.345 .460 36. .605 -.332 .605 37. .551 .303 -.328 .551 38. .532 .443 .532 39. .532 .332 .532 40. .658 .328 .658 41. .601 .437 42. .364 .310 -.328 .487 .364 43. -.379 .421 .542 .310 44. .452 -.505 .307 .452 Eigenvalues 5.720 1.818 1.504 1.356 1.248 1.111 1.012 5.720 Total 26.001% 8.263% 6.835% 6.164% 5.674% 5.051% 4.598% 26.001% variance explained Cronbach’s alpha .843 NOTE: Factor loadings below .3 discarded Extraction Method: Principal Component Analysis/Oblimin Rotation

Affective Trust

Table 3. Affective trust. Factor Analysis Scale Factor One factor 1 extraction 75. We have a sharing relationship. We can both freely share our .856 .856 ideas, feelings and hopes. 76. I can talk freely to this individual about difficulties I am having .842 .842 at work and know that (s) he will want to listen 77. We would both feel a sense of loss if one of us was transferred .806 .806 and we could no longer work together 78. If I shared my problems with this person, I know (s)he would .815 .815 respond constructively and caringly 79. I would have to say that we have both made considerable .806 .806 emotional investments in our working relationships Eigenvalues 3.405 3.405 Total variance explained 68.098% 68.098% Cronbach’s alpha .880 NOTE: Factor loadings below .3 discarded Extraction Method: Principal Component Analysis/Oblimin Rotation

Cognitive trust

Table 4. Cognitive trust. Factor Analysis Scale Factor One factor 1 extraction 80. This person approaches his/her job with professionalism and .849 .849 dedication 81. Given this person’s track record, I see no reason to doubt .880 .880 his/her competence and preparation for the job 82. I can rely on this person not to make my job more difficult by .795 .795 careless work 83. Most people, even those who aren’t close friends of this .851 .851 individual, trust and respect him/her as a coworker 84. Other work associates of mine who must interact with this .865 .865 individual consider him/her to be trustworthy 85. If people knew more about this individual and his/her .435 .435 background, they would be more concerned and monitor his/her performance more closely (reverse-coded) Eigenvalues 3.787 3.787 Total variance explained 63.123% 63.123% Cronbach’s alpha .864 NOTE: Factor loadings below .3 discarded Extraction Method: Principal Component Analysis/Oblimin Rotation