Overconfident leaders? Testing the effect of misaligned leader-member-exchange perceptions on the relationship between justice, trust and organizational performance measures

Abstract

The purpose of this paper is to examine the effect of manager and employee perception of justice and trust on workplace outcomes, by testing the mediating effect of employee trust on the relationship between organisational justice and performance measures (absence rate, financial performance, labour productivity, product quality). Then, the effect of manager overconfidence as a moderator of this relationship is tested. Management and employee data from 1462 workplaces in the UK were analysed. Path analysis was used to test the moderated mediation model. The results show that employee trust mediates the relationship between organisational justice and financial performance, labour productivity, and quality of product or service. Manager overconfidence was found to moderate the indirect effect of both interpersonal justice and procedural justice on these three performance outcomes through employee trust. Understanding the relationships between justice, trust and organisational outcomes, as well as the effect of managerial overconfidence thereupon, helps managers and decision-makers to design better policies in the interest of the firm’s performance.