Leadership style, interpersonal and institutional trust, and engagement : examining the linkages in Malaysian banking sector

Abstract

Over the recent years, substantial evidences of the impact of leaders’ unprofessional behavior and ethical lapses have been documented. These types of failures include the destruction of some of the world’s largest companies and the resultant loss in hundreds of billions of dollars in shareholder values. Creating a healthy and trustful work environment is crucial due to the plethora of overwhelming business scandals across the world. Leaders play a pivotal role in shaping such a conducive, trustworthy, and engaged work atmosphere. Little empirical evidence exists; however, about authentic leadership behavior and its subsequent impact on work behavior like trust and work engagement. To fill this gap, the present research examined these issues in the banking sector in Malaysia. Specifically, it investigated the relationships among leadership styles (authentic, transformational and transactional), interpersonal and institutional trust, and employee work engagement. Furthermore, the study examined the mediating effect of organizational trust in the role of perceived leadership styles of supervisors and employees’ work engagement. Sample consisted of 395 employees recruited from four major banks (two Islamic and two conventional). Data were collected with the help of standardized tools. Structural Equation Modeling (SEM) and other relevant statistical methods were used to analyze the data. As predicted, structural path diagrams showed that authentic leaders were perceived to be more trustful that contributed to employees’ work engagement. The empirical test indicated that organizational trust played a significant mediating role between leadership styles and employees’ work engagement. Although the study did not find certain direct paths as significant, the indirect paths or mediating roles were significant in the linkages of authentic and transformational leaderships with interpersonal and institutional trust as well as between these two trusts and work engagement. The model comparison and independent sample t-test further indicated that leaders in Islamic banks were perceived to be more authentic and trustworthy; subsequently, the employees were also more engaged in their job than their conventional counterparts. Finally, many alternative models were examined, and recommendations were made. Overall, this study is important because it helps to explain the overwhelming impact of authentic leadership factors on employees’ work engagement, particularly, in generating a trusting relationship with the employees, which intermediates the relationship between authentic leadership style and components of work engagement. The finding should add to the leadership literature.