LMX and a perceived supportive environment for corporate entrepreneurship: the mediating role of psychological empowerment

2.1 Corporate entrepreneurship and leader–member exchange

Corporate entrepreneurship is a process of organizational renewal involving two separate yet intertwined phenomena within organizations (Phan et al., 2009). First, corporate entrepreneurship entails activities focusing on innovation and corporate venturing aimed at creating and integrating new businesses within the firm’s overall portfolio (Narayanan et al., 2009). Second, corporate entrepreneurship also enhances the ability of the firm to take competitive risks in identifying and exploiting opportunities to create a sustained competitive advantage, an internal organizational capacity that some have referred to as strategic entrepreneurship and which may or may not result in new businesses (Ireland et al., 2003; Kuratko and Audretsch, 2009).

Beyond these two basic phenomena that characterize corporate entrepreneurship, prior research has suggested that organizational environments that support and promote entrepreneurial alertness, innovation and risk-taking are critical for facilitating corporate entrepreneurship activities (Hornsby et al., 2009; Kuratko et al., 1990; Tseng and Tseng, 2019). More specifically, researchers have noted five key dimensions that may help to determine whether an environment is favorable for encouraging entrepreneurial behavior, including support from top management, autonomy and work discretion, reinforcements and rewards, availability of time and flexible organizational boundaries (Kuratko et al., 2014; Tseng and Tseng, 2019). Importantly, these findings highlight the critical role of individual perceptions or alertness of the presence of these environmental factors in shaping subsequent corporate entrepreneurship behaviors and activities (Hornsby et al., 1999; Hornsby et al., 2002; Simsek et al., 2007; Tseng and Tseng, 2019). Consequently, in the present study, we focus on individual perceptions of the extent to which their environment is supportive of corporate entrepreneurship.

A substantial amount of prior research has focused on identifying possible antecedents of corporate entrepreneurship (Chang et al., 2022; Ireland et al., 2003), and recent research has focused on the role of leadership in shaping corporate entrepreneurship (Verma and Mehta, 2022). One heretofore unexplored potential antecedent of corporate entrepreneurship is the quality of the relationships between leaders and followers. As described by Martin et al. (2010), LMX theory was first introduced in the mid-1970s, focusing on these types of leader–member relationships or so-called vertical dyad linkages. Perhaps the most refined conceptualization of LMX is offered by Scandura et al. (1986, p. 580):

Leader member exchange is (a) a system of components and their relationships (b) in both members of a dyad (c) involving interdependent patterns of behavior and (d) sharing mutual outcome instrumentalities and producing conceptions of environments, cause maps, and value.

Essentially, leaders and followers interact with one another independently of other relationships to form their own bond upon which they base their working relationship. However, some of these relationships will be stronger and more effective than others. Martin et al. (2010) defined low-quality LMX relationships as those in which exchanges between the leader and followers are primarily focused solely on their working relationship. For instance, a leader and a subordinate may work very well together, but that relationship may focus strictly on what the job entails with little talk of nonwork-related influences. On the other hand, high-quality LMX relationships may offer both the leader and the follower an opportunity to voice ideas and concepts outside the strict realm of their specific roles within the firm (Martin et al., 2010). Indeed, research has suggested that high-quality LMX relationships increase employee voice behaviors and, ultimately, innovative work behaviors (Nazir et al., 2021).

It is in the context of these nonrole-specific interactions for individuals with high-quality LMX relationships that the leader and follower may find themselves expanding into new areas in which they think the firm could reasonably operate. Returning to Penrose’s (1955) idea of unused firm services, it is reasonable to expect individuals within the firm to use their creativity and inside knowledge of the firm and its operations to ascertain ways in which the firm could expand and benefit from either deploying or simply better using, existing unused or underused assets. These ideas, which we consider entrepreneurial in nature, can come from any level of the firm and are certainly not relegated to those individuals in research and development or at certain leadership levels. In fact, until reaching the level of owner or firm chief executive officer, all internal organizational members report to someone and therefore participate in some form of LMX scenario as a subordinate. This provides an excellent avenue for individuals with big ideas about the firm to make their voices heard (Nazir et al., 2021).

Empirical research findings provide additional support for these theoretical arguments, suggesting a relationship between LMX and corporate entrepreneurship. For instance, Hsieh (2012) reported a positive relationship between high-quality LMX dyads and perceptions of supervisor support in a sample of 370 bank employees in Taiwan. Moreover, Farr-Wharton et al. (2011) showed a relationship between high-quality supervisor-subordinate LMX relationships and perceptions of autonomy. Similarly, Sanders and her colleagues (Sanders et al., 2010) found that high-quality LMX was related to satisfaction with human resources practices, including employee influence (i.e. discretion and autonomy) and reward outcomes (both monetary and nonmonetary) and, ultimately, employee innovative behaviors. It seems reasonable to suggest, therefore, that high-quality LMX relationships will be related to follower perceptions of a supportive environment (e.g. leader support, autonomy, discretion, reward satisfaction, etc.) for corporate entrepreneurship behaviors. Consequently, based on these empirical, theoretical and rational bases, we advance:

2.2 The mediating role of psychological empowerment

The arguments supporting our first hypothesis are based on the assumption that given a high-quality LMX relationship, a subordinate with an innovative idea will be comfortable in acting upon it and/or suggesting it to their leader (Nazir et al., 2021). Realistically, however, the subordinate may feel uncomfortable in doing so and, therefore, despite their high-quality relationship, may choose not to act upon their idea or share it with their leader. To better explain this behavioral contingency, we introduce psychological empowerment as a potential mediating mechanism of the effects of leader/subordinate relationships on follower perceptions of a supportive environment for corporate entrepreneurship. We first provide an overview of the foundational concepts of psychological empowerment before discussing their relevance to our hypothesized model.

Expanding on the work of Conger and Kanungo (1988), Thomas and Velthouse (1990) began with the idea that through empowerment, workers would find an internal commitment for performing their tasks, in contrast to simply responding to a push to conform by management. They go on to develop a cognitive model of empowerment that begins with interventions affecting both external environmental events and internal interpretive styles of employees, both of which act on task assessments. Task assessments are global in nature but also specific to discrete events. These assessments lead to behaviors that interact with environmental events, and the model continues in a circular fashion. The four task assessments representing the psychological impact of empowerment are impact, competence, meaningfulness and choice (Thomas and Velthouse, 1990). Both Thomas and Velthouse (1990) and Spreitzer et al. (1999) offer additional explanations of these four components, ultimately arriving at the idea that these factors compel individual employees to engage in their work situations and to shape them via their own actions and that through their joint operation, these four factors combine to form the overall construct of psychological empowerment (Spreitzer, 1995).

Having provided an overview of the basic components of psychological empowerment, we turn now to explicating how and why psychological empowerment may serve as a mediating mechanism between LMX and corporate entrepreneurship. Based on role theory (Biddle, 1986), supervisory-subordinate relationships can have a high impact on the subordinate’s role clarity (Wang et al., 2016). In high-quality LMX relationships, supervisors provide subordinates with valuable resources such as information, autonomy, decision latitude and social support (Zhou et al., 2012). These resources relate directly to the four dimensions of psychological empowerment. First, the easier access to information and challenging assignments provided in high-quality LMX relationships can lead to more enjoyment of the job and provide a greater sense of meaningfulness (Aryee and Chen, 2006). Second, more social support can lead to more success, which can improve the feeling of competence (Zhou et al., 2012). Third, the ability to participate in decision-making processes can lead to enhanced perceptions of making a difference or having an impact on outcomes at work, which can lead to self-determination and impact feelings (Wang et al., 2016). Thus, based on the positive relationship between high-quality LMX and psychological empowerment’s key dimensions, it seems likely that high-quality LMX relationships will positively influence an individual’s feelings of psychological empowerment.

Beyond these theoretical rationales for a relationship between LMX and psychological empowerment, empirical research has provided evidence in support of this linkage (Dulebohn et al., 2012; Zhou et al., 2012). For example, Kim and George (2005) reported a positive relationship between high-quality LMX and psychological empowerment in a sample of 173 restaurant workers in the USA. Similarly, Hill et al. (2014) showed a positive relationship between LMX, psychological empowerment and a variety of subsequent follower work outcomes in a sample of 353 early-career professionals from several different industries and organizations. Finally, Newman et al. (2017) found a strong positive relationship between LMX relationship quality and psychological empowerment.

Additionally, theorists have long linked the concepts of innovation and empowerment in entrepreneurial firms (e.g. Kanter, 1984; Spreitzer et al., 1999; Yasir et al., 2023), with particular attention paid to the context of corporate entrepreneurship. For instance, Hill and Rothaermel (2003) found that advances in product specifications and performance are associated with technology breakthroughs in firms with innovation-based corporate entrepreneurship (Kelley et al., 2009). Moreover, Rafique et al. (2023) provided evidence in support of psychological empowerment as a mediator of the relationship between innovative behaviors and several organizational antecedents in a sample of 346 faculty members at Pakistani public sector universities. In addition, Mahmoud et al. (2022) showed a linkage between psychological empowerment and individual performance as mediated by intrapreneurial behaviors in a sample of 355 medium enterprises production/operations managers. Finally, Rafique et al. (2022) found LMX to be linked to innovative employee behaviors as mediated by employee empowerment. Taken together, the evidence suggests that psychological empowerment, innovation and corporate entrepreneurship may be linked together in a variety of different circumstances (Shafique et al., 2020).

Given the theoretical and empirical evidence outlined above, it seems reasonable to advance psychological empowerment as a mediator between LMX relationship quality and followers’ perceptions of a supportive environment for corporate entrepreneurship activity. Indeed, psychological empowerment has been found to serve as a key mediator of the relationships between LMX and a wide variety of important outcomes including task performance, employee voice, job satisfaction, psychological withdrawal behaviors, emotional exhaustion and depression (Aryee and Chen, 2006; Schermuly and Meyer, 2016; Wang et al., 2016. Young et al., 2021). Thus, relying on the theoretical and empirical framing outlined above, we hypothesize:

2.3 The moderating role of control orientation

Deci and Ryan (1985, p. 111) define causality orientations as “people’s (explicit or implicit) understanding of the nature of causation of behavior, which is a stable disposition over time and across domains.” In other words, causality orientation involves individual differences in how people typically perceive the source of their behavioral initiation (Vansteenkiste et al., 2010). Autonomy-orientated people tend to look for self-determination and choice and are more likely to interpret their situations as more autonomy-promoting. They organize their actions based on their own interests and values. High levels of autonomy orientation are associated with being internally motivated and interpreting extrinsic events as affirmative of self-competence and self-effectivity (Deci and Ryan, 1985). Such people tend to gravitate toward jobs that are challenging and require initiative. On the other hand, control-oriented individuals are extrinsically motivated, with their motivation promoted by external factors such as status and pay. People high in control orientation are more likely to be controlled by other’s directives and are more attuned to the demands of others than to their own wants. Consequently, people high in autonomy orientation are likely to feel empowered whether they experience low-quality or high-quality LMX relationships because they interpret the extrinsic events as a chance to enhance their self-competence and because they are already experiencing high levels of high self-esteem and autonomy (Deci and Ryan, 1985). In contrast, individuals high in control orientation will experience different levels of psychological empowerment in the face of low or high-quality LMX. Thus, the opportunity to participate in more decision-making activities and to engage in more challenging tasks as the result of high-quality LMX should allow high control-oriented people to perceive extrinsic motivation and feel more empowered compared to those who are low in control orientation. Based on this logical line of reasoning, we propose the following moderating hypotheses:

Our hypothesized moderated mediation model of the relationship between LMX quality and followers’ perceptions of a supportive environment for corporate entrepreneurship activity through psychological empowerment as conditional upon the level of follower control orientation is summarized in Figure 1.

3.1 Procedure and sample

After receiving institutional review board (IRB) approval, participants were solicited through the networks of undergraduate students from an introductory business management course at a large mid-Atlantic university in the USA. Students were offered extra credit to recruit participants who met the inclusion criteria of being at least 18 years old, being currently employed, working full-time and living in the USA. Volunteers were vetted with a series of filter questions to ensure that they met the inclusion criteria. A total of 712 completed surveys were received. After removing responses with missing data and for people who failed in answering an attention check question, we arrived at a final sample of 682. The sample was comprising of 45% men, 52% women and 3% who preferred not to say and represented a variety of industries. A majority of the respondents (51%) have a college degree and were used at their organizations for at least six months. Participants ranged in age from 18 to 65 years old and represented 33 different states in the USA.

3.2 Measures

Perceived supportive environment for corporate entrepreneurship. We used the 48-item Corporate Entrepreneurship Assessment Instrument developed by Hornsby et al. (2002) to operationalize the corporate entrepreneurship construct. The scale measures employee perceptions of the extent to which their work environment is supportive of corporate entrepreneurship using the five key dimensions as outlined above (Kuratko et al., 2014). Nineteen items assessed the “management support for corporate entrepreneurship” dimension. A sample item is: “Those employees who come up with innovative ideas on their own often receive management encouragement for their activities.” Ten items measured the “work discretion” dimension. A sample item is: “I have the freedom to decide what I do on my job.” Six items measure the dimension of “rewards/reinforcement” with a sample item as follows: “My supervisor will give me special recognition if my work performance is especially good.” Six items reflect the “time availability” dimension. An exemplary item is: “I always seem to have plenty of time to get everything done.” Finally, seven items evaluate the “organizational boundaries” dimension as demonstrated by the following item: “There are many written rules and procedures that exist for doing my major tasks.” Responses are assessed using a seven-point Likert-type scale ranging from “strongly disagree” to “strongly agree.” Hornsby et al. (2002) reported coefficient alpha reliabilities ranging from 0.69 to 0.92 across the five subscales.

5.1 Theoretical and managerial implications

Our study’s findings offer important implications for theory and practice. First, relatively few leadership scholars have studied the macrolevel outcomes of leadership styles. In contrast, our research emphasizes the importance of the microlevel mechanism of the dyadic relationship between a leader and a follower and how it may benefit firms at the macrolevel. Our results imply that developing high-quality relationships with followers should encourage feelings of psychological empowerment, resulting in perceptions of a supportive environment for corporate entrepreneurship, which in turn should lead to greater levels of corporate entrepreneurship activities in the firm (Zahra, 1993). These findings, therefore, should encourage future researchers to study other aspects of leadership style relative to other various macro-level outcomes of the firm, including but not limited to corporate entrepreneurship.

Second, our study takes an important first step toward better understanding the means and mechanisms for unlocking unused services in the firm and engaging such shadow resources to enhance corporate entrepreneurship and, ultimately, organic firm growth. Specifically, our findings suggest that high-quality LMX relationships can have both a direct impact on perceptions of a supportive environment for corporate entrepreneurship as well as an indirect effect through enhanced psychological empowerment. Moreover, our findings reveal an important attenuating factor on these mechanisms: the extent to which the follower has a high or low control orientation. Those followers with a high control orientation will be more reactive to the positive effects of a high-quality LMX relationship in terms of their feelings of psychological empowerment. In contrast, individuals with a low control orientation and/or high in autonomy orientation will be less reactive to the positive effects of high-quality LMX because they will be more likely to experience psychological empowerment simply as a result of their disposition. In short, high-quality LMX may be more effective in enhancing corporate entrepreneurship activities for certain followers and in certain situations. Future research should explore other potential mediators and moderators of the effects of LMX on corporate entrepreneurship, along with the role of other leadership styles and approaches in unlocking the shadow resources of the firm.

Finally, from a more practical standpoint, this research informs managers in terms of how their leadership style may play a vital role in empowering employees and in encouraging or discouraging innovation and risk-taking in their jobs. It further implies that managers should encourage individuals to take a leading role in corporate entrepreneurial projects even if they involve high risks of failure. In short, managers aiming to facilitate corporate entrepreneurial projects should strive to develop high-quality relationships with their followers and empower them to facilitate perceptions of support for entrepreneurial behaviors and, ultimately, more actual entrepreneurial activities at work.

5.2 Limitations and future research

Although this study provides beneficial implications for both theory and practice, certain limitations should be acknowledged. First, our data collection procedures used a student-recruited network sampling technique through which study participants were recruited via the family, personal and social media networks of undergraduate students. Student-recruited sampling procedures may increase the potential of a nonrepresentative sample because students are likely to refer relatives and friends from their personal networks, which could be focused on a specific subpopulation such as upper-middle-class families. This raises concerns regarding the external validity of our sample and whether the results found here are generalizable to other populations of interest (Demerouti and Rispens, 2014). However, Demerouti and Rispens (2014) note that student-recruited samples have several advantages, including reduced costs, and a recent meta-analysis by Wheeler et al. (2014) suggests that student-recruited samples demonstrate a similar degree of representativeness when compared to samples recruited using other approaches. Nonetheless, future research could engage a more randomized sampling strategy that could reduce the potential biases described above and increase the generalizability of results. Second, our study design involved cross-sectional, self-reported data. Cross-sectional data may be especially susceptible to the risk of common method variance (CMV). While some methodology experts have speculated that the negative effects stemming from CMV may be somewhat inflated and, at best, are not clearly understood (Malhotra et al., 2006; Spector, 2006; Spector et al., 2019), we nonetheless engaged in several ex-ante strategies to attenuate the possibility of method biases (Podsakoff et al., 2003). These strategies included building attention check items into our survey and using differing scale formats, including vignette-based scale items. Nevertheless, readers should engage caution when interpreting the findings reported here. To help alleviate the threat of CMV, future researchers could use multisource data collection to measure the responses of both the leaders and the followers. Moreover, a comparative study could be conducted between employees at an early stage of their careers relative to employees at a more advanced stage of their careers. Third, the data collected for this research was limited to the USA. Future researchers could conduct a cross-cultural examination of the current model and expand on the results reported here by comparing the responses from participants working in tech versus non-tech firms or firms that are highly innovative versus firms that are comparatively less innovative. Additionally, the same model could be explored in public versus private firms. Finally, as with most studies that explore hypothesized models, our findings and interpretations are limited by the possibility of unmeasured variable concerns, which involve the potential existence of additional causal variables not included in the conceptual model, allowing for alternative explanations of the findings (James, 1991). For example, contextual factors such as communication climate, process factors such as reward alignment and individual factors such as self-efficacy have all been suggested as possible antecedents to corporate entrepreneurship (Rutherford and Holt, 2007) but were excluded from our hypothesized model. Consequently, future research should explore other possible antecedents, mediators and moderators of perceptions of a supportive environment for corporate entrepreneurship in organizations.

5.3 Conclusion

In closing, we used control orientation as a moderator to help us better understand how control-oriented individuals who are externally motivated and who do not instinctively pursue ways to enhance their competence, autonomy and job meaning can be psychologically empowered by high-quality relationships with their leaders. These findings are exciting because they offer one clear path toward unlocking firm’s unused resources and shadow options, potentially releasing more creativity and innovation, enhancing a perceived supportive environment for corporate entrepreneurship and, ultimately, actual corporate entrepreneurship behaviors and actions. Our results may further serve as a practical guide for managers to enhance the feeling of individual empowerment by creating high-quality relationships with their subordinates so that the firm itself can ultimately benefit from corporate entrepreneurship and sustained organic growth for the future.