Authentic Leadership, Leader-Member Exchange, and Psychological Capital: A Literature Review

This literature review explores the relationship between authentic leadership, Leader-Member Exchange (LMX), and employees’ Psychological Capital. It also discusses the importance of Psychological Capital in the performance level of the employees and ways in which leaders can build psychological capital of different types of employees.

Running head: POSITIVE LEADER
Positive Leader
Name of the Student:
Name of the University:
Author’s Note:

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Introduction
Positive leaders or authentic leaders are highly efficient in building positive and
collaborative relationship with the employees. Positive leader member exchange fosters honesty
and moral integrity among the employees (Little, Gooty and Williams 2016). Hence, such
employees become emotionally connected with their organizational goals and job roles. In this
way, such employees become highly performing for achieving organizational success. This
literature review will demonstrate the relationship between authentic leadership, Leader-Member
Exchange (LMX) and employees’ Psychological Capital. The literature review will also discuss
the importance of Psychological Capital in the performance level of the employees. Furthermore,
the study will critically review the literature that will explain the ways in which leaders can build
psychological capital of different types of employees like professionals versus administrative
employees, emotional labor, blue collar versus white collar employees, different generational
cohort, and/or different ethnicities. The literature review will demonstrate the importance of
emotion on the performance level of the employees.
Discussion
Authentic leadership can broadly be termed as genuine, positive and ethical form of
leadership. This leadership has been recognized as the most popular positive approach of
leadership, which can extremely help in meeting today’s business challenges. According to
Leroy et al. (2015), authentic leaders always share organizational information with their
followers for making organizational decisions, other’s inputs, disclosing their motives, personal
values and sentiments. Moreover, this leadership is mostly characterized by openness, self-
awareness and clarity behavior. On the other hand, Wang et al. (2014) stated that the

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characteristics of the authentic leaders enable the followers towards accurately assessing the
morality and competence of the authentic leader’s actions. In this way, such leaders maintain the
clarity and transparency in their behavior and actions for building trust among the followers.
Such mechanism ultimately influences the attitude, behavior and performance of the followers.
On the other hand, high quality leader member leadership results in friendliness and effective
intimacy among leaders and employees (Michel and Tews 2016). Such friendly relationship
fosters mutual beneficial relation among leaders and employees leading to increased employee
performance.
Authentic leaders are highly efficient in developing and influencing their followers
through invigorating their positive psychological state, which is extremely conducive for their
enhanced performance. According to Laschinger and Fida (2015), authentic leaders draw from
their own psychological resources and contribute the psychological state of the followers for
enhancing their performance. Psychological capital has been recognized as the positive
psychological resources of the employees, which is consisted of the factors like efficacy, hope,
optimism and resiliency. Furthermore, Hirst et al. (2016) opined that authentic leaders always
behave in accordance with their actual value and strive to achieve truthfulness and openness with
the relationship with the employees. Moreover, such leaders lead the employees by setting
examples and demonstrating the transparency of decision making. They also guide the
employees towards being emotionally connected and cognitively vigilant during their work
performance. In this way, authentic leaders become able to generate moral standard among the
employees, which help the employees in maintaining honesty, ethical standards, integrity and
fairness in their work performance.

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The psychological capital plays an important role in moderating the performance level
of the employees. Authentic leadership is positively associated with the enhance performance
level of the employees through building high level of psychological capital among them.
According to Sendjaya et al. (2016), authentic leaders mostly remain realistically trustworthy
and hopeful, which can enhance the hope of employees not only establishing willpower among
them but also demonstrating positive aspects of direction to pursue a certain task. In this way,
such leaders are extremely efficient in enhancing the sense of self-efficacy among the employees
towards performing certain job. On the other hand, Rego et al. (2014) pointed out that authentic
leaders interpret information, exchange and interact with the employees from positive
perspective that evoke the positive emotion of the employees. In this way, the positive emotion
ultimately turns into optimistic perspective among the employees for completing their jobs
successfully. More specifically, the employees having high psychological capital remain highly
optimistic, hopeful, confident and resilient towards their job. Such positive capacities lead them
to achieve high level of performance at their work.
Leader member exchange (LMX) denotes the rational approach of establishing positive
relation between the authentic leaders and employees towards enhancing employee performance.
Moreover, LMX plays an important role in mediating the performance level of the employees.
According to Lyubovnikova et al. (2017), leader member exchange relationship nourishes the
positive social exchange through the virtue of establishing credibility and gaining the respect of
the employees. The components like internalized moral standards, self awareness, relational
transparency and balanced processing constitute the central element of the high quality leader
member exchange relationship. Authentic leaders show respect for each employees by eliciting
diverse viewpoints from them. In this way, the leaders become able to build trust among the

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employees. On the other hand, Hsieh and Wang (2015) mentioned that authentic leaders always
remain true to themselves and display high level of moral integrity. Such moral integrity and
honesty build trust of the employees and enhance their willingness to build to cooperate with the
leaders towards increased organizational performance
Authentic leadership is positively associated with leader member exchange relationship,
which is obligated to reciprocate good performance among the employees. According to
Laschinger and Fida (2014), low quality leader exchange leadership leads to normal or standard
task performance because the exchange of relationship is contractual and quid pro quo.
Moreover, the employees with low psychological capital are less driven by the leader member
exchange relationship. On the other hand, Boekhorst (2015) opined that high quality leader
member exchange relationship leads to superior performance among the employees. Such high
quality leader member exchange relationship moves from economic factor to social exchange
relationship between the leaders and employees. The LMX is actually characterized by respect,
mutual trust and obligation, which fosters high level of willpower among the employees towards
enhancing their performance level. A large body of empirical evidence over the last three
decades has demonstrated favorable relationship between positive LMX and enhanced
performance level of the employees. In this way, authentic leaders are positively associated with
the quality of LMX relation and outcome of the employees.
Leader member exchange leadership mediates the relationship among the leaders and
employees. Such high exchange relationship becomes instrumental in supporting and motivating
the employees to enhance their performance level. According to Gu, Tang and Jiang (2015),
positive association between the LMX and performance level of the employees is due to the
tangible and intangible benefit that the employees gain from LMX. The employees can gain

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positive feedback from the leaders, help from leaders to defend themselves from negative impact
and mobilize task relevant resources for them through LMX relationship. On the other hand,
Wang et al. (2014) opined that the employees can expose themselves to favorable assignment,
encourage themselves to take challenging tasks and protect themselves from unfair
organizational practices through high quality LMX. In this way, high quality LMX results in
positive working condition for the employees, which leads to enhanced individual performance.
Positive exchange relationship enhances the support, cooperation and motivation of the
employees from the part of leaders (Carnevale et al. 2017). In this way, such employees become
highly willing towards enhancing their work performance.
Psychological capital represents the set of positive psychological resources, which leads
to motivational propensity among the employees for accomplishing tasks and goals. According
to Little, Gooty and Williams (2016), psychological capital makes the employees emotionally
connected with their organization and works. Hence, they become highly motivated towards
being positive for achieving organizational goals. On the other hand, Gill and Caza (2018)
mentioned that positive psychological capital builds trusts of the employees on their leaders and
organization. Hence, the employees always try to maintain positive outcome outlook among
them for the success of organization. The employees having high quality positive psychological
capital are highly honest towards their organization. Hence, they remain highly ethical in
performing their job roles as per organizational standard. In this way, positive psychological
resource is also associated with the ethical and moral standard of the employees. Such resources
also lead to high quality leader member exchange relationship, which encourage the employees
to perform at high level for maintaining positive relationship with the leaders. On the other hand,
Rego et al. (2014) stated that positive psychological capital makes the employees highly

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optimistic about their job performance and organization goals. Hence, they can better direct their
performance level towards leading organizational performance.
Authentic leaders and leader member exchange relationship effectively builds the
psychological capital among different types of employees. Professional employees deal with
specialized field of jobs, which requires skills required by experience rather that specialized
intellectual instruction. Such employees must need considerable freedom for carrying out the job
and general control over their tasks. According to He et al. (2017), the authentic leaders need to
delegate some form of authority to the professional employees for developing psychological
capital among them. Moreover, delegation of authority and positive relation with the leaders
builds the confidence among the professional employees towards performing their jobs
efficiently. On the other hand, Hinojosa et al. (2014) opined that administrative employees
mostly manage the management and general business operation. Such employees regularly
exercise the independent judgment regarding the performance of intellectual work. Hence, the
leaders should be open to the unique ideas of the executive employees building trust and
resilience among them to perform their jobs. Emotional labors are always expected to regulate
their emotion during their interaction with the superiors, customers and co-workers. Hence, such
employees need positive support and perfect role model demonstration, which can make them
optimistic in controlling their emotion with others.
Blue collar employees generally perform labor jobs and typically work on manual jobs.
The blue collar employees are mostly unskilled and low skilled workers performing the jobs like
cleaning, maintenance and assembly line work. According to Hewlin, Dumas and Burnett
(2017), the leaders should provide exchange of information and positive support to the blue
collar employees for building psychological capital among them. Exchange of information will

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enhance their involvement with the core organizational goals. Hence, they can develop their
willpower towards attaining their job goals. Furthermore, positive support from the leaders can
develop their optimism level towards performing their job successfully. On the other hand,
Litano et al. (2016) opined that while collar employees are highly skilled and officially trained
professionals. Such employees perform their job duties within the office premises. Moreover,
such employees require using their brain for performing their jobs effectively. The leaders should
use delegation of power and authority for building trust among these employees. Such trust will
develop self-efficacy among the while collar employees that will mobilize their cognitive
resources towards obtaining specific job outcome.
Employees from different generational cohort are having different characteristics and
behaviors. Moreover, such employees have different attitudes towards their jobs. Hence, it
becomes quite difficult for the leaders to manage such employees and maintain coherence among
these kinds of employees. According to Buch et al. (2014), the leaders should persistently follow
authentic leadership, where the leaders should be open to all the employees regardless of their
generational cohort. Moreover, the leaders should equally value the inputs and ideas from
different types of the employees from different generational cohort. The leaders should highly
value the experience level of the old generation employees in making business decision. Such
value will foster confidence and self-efficacy among such employees towards performing their
jobs in effective manner. On the other hand, Gill and Caza (2018) opined that the leaders should
be highly open and trustworthy on the advanced skills of the young generational employees.
Such trust and openness will lead to resilience among the young generation employees to lead
positive changes in the organization. It can ultimately foster organizational innovation.

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Furthermore, the young generation employees also need positive support for building confidence
among them towards performing their jobs effectively.
The employees from different ethnicities are having different perspective towards the
same kind of jobs. The employees having different ethnicities have different job attitude towards
the same types of jobs. Such employees can make cultural clashes among each other due to their
different job perspective on same jobs. In such situation, it becomes quite difficult for the leaders
to make consistency among the opinions of these employees. According to Hinojosa et al.
(2014), the leaders should be highly open to the ideas and perspective of different employees
having different ethnicities. Moreover, the leaders should provide equal value to different value
of different employees. Furthermore, the leaders should effective exchange the organizational
information and value of different ethnicity among different employees. Such exchange of
information develops optimism and resilience among the employees towards accepting different
job opinions from other employees having different ethnicity.
Emotion is extremely important among leaders, managers and employees for
significantly improving the performance level of the employees. According to Wang et al.
(2014), high level of emotional intelligence among the leaders helps them to understand the core
strength and weakness of the employees. Hence, such leaders can better improve the
performance level of the employees by effectively utilizing their strength and improving their
weakness. High level of emotional also facilitates the leaders to make emotional bonding with
the employees and encourage them towards increased performance. On the other hand, Rego et
al. (2014) opined that proper emotional intelligence facilitates the managers towards
understanding the employee properly and engaging with them to lead them towards
organizational success. In this way, emotional managers are highly efficient in enhancing the

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performance level of the employees. Furthermore, Hewlin, Dumas and Burnett (2017) stated that
emotion among the employees helps them to build emotional bonding with the organizational
goals and objectives. Hence, they can better align their performance with the organizational
goals towards achieving them effectively.
Conclusion
While concluding the study, it can be said that authentic leaders are highly effective in
building genuine and positive relationship with the employees. Such leaders are highly popular
in building leader member exchange relationship with the employees. Authentic leadership is
highly associated with building leader member exchange relationship, which foster
psychological capital among the employees. The psychological capital like
self-efficacy/confidence, hope, optimism and resilience are extremely important for enhancing
the performance level of the employees. The authentic leaders openly exchange organizational
information with the employees, which builds the hope and optimism among the employees
regarding the performance towards leading organizational goals. Leader member exchange
relationship nourishes positive social exchange through the virtue of establishing credibility and
gaining the respect of the employees. It builds moral standard and self-awareness among the
employees towards achieving organizational goals and objectives. High quality psychological
capital turns the employees honest, confident and efficient at their job roles. The leaders should
be open and supportive to the blue collar employees for building their confidence on their job
role. However, the leaders should delegate authority to the while collar employees for enhancing
their self-efficacy to perform their jobs effective. Furthermore, the leaders should equally value
the opinions of the employees from different generational cohort and ethnicity towards leading
resilience among them.

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