Ethical Leadership and Employee Psychological Safety as Drivers of Organizational Innovation in Global Service Industries
Keywords:
Ethical Leadership, Psychological Safety, Organizational Innovation, Global Service Industries, Structural Equation Modelling, Leadership Behaviour.Abstract
Innovation in organizations has emerged as a major source of competitive advantage in the service sector worldwide, where technological evolution is rapid, the industry is knowledge-based, and customer demands are changing dynamically. In this paper, the authors explore how ethical leadership and employee psychological safety are important determinants of organizational innovation. The study will be based on both Social Learning Theory and Social Exchange Theory, in which ethical leadership affects innovation directly or indirectly through psychological safety. The research design was a quantitative, cross-sectional study, and the sample comprised 342 employees from international service-based organizations in the IT, financial services, consulting, and hospitality sectors. The hypothesized relationships were tested using Structural Equation Modelling. The findings suggest that ethical leadership has a substantial positive impact on psychological safety (β = 0.63, p < 0.001) and that psychological safety has a substantial positive impact on organizational innovation (β = 0.49, p < 0.001). The partial mediation is also supported by showing that ethical leadership has a direct influence on innovation (β = 0.32, p < 0.001). The model accounts for 52% of organizational innovation variation by demonstrating the significant contributions of leadership ethics and workplace climate. These results indicate that structural investments alone do not promote innovation in service industries; rather, high rates of relational trust and facilitating psychological conditions are key contributors to innovation in service industries. The research contributes to the literature on leadership and innovation by proposing an integrated empirical framework that combines ethical leadership and psychological safety, with practical implications for organizations aiming to achieve sustainable innovation performance.
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