Leaders' trait signaling effect on followers' psychological contract dynamics

Purpose Using signaling theory and the literature on psychological contracts, the authors investigate how leaders' personalities shape their followers' perceptions of the type of psychological contract formed. They also suggest that leaders' personalities impact their followers' perceived contract breach. Furthermore, the authors propose that power distance orientation in organizations acts as an important boundary condition that enhances or exacerbates the relationships between personality and contract type and personality and perceived breach. Design/methodology/approach Data were collected through multiple sources in Pakistan from 456 employees employed in 102 bank branches. Multilevel moderated path analyses provided reasonably good support for our hypotheses. Findings The leaders' personalities impacted the relational contracts of their followers in the cases of extraversion and agreeableness, whereas neuroticism had a significant relationship with the followers' formation of transactional contracts. Similarly, agreeableness, neuroticism and conscientiousness had significant relationships with perceived breach. Finally, the power distance of the followers aggregated at a group level moderated the personality-contract type and personality-perceived breach relationships. Research limitations/implications This research advances understanding of psychological contracts in organizations. More specifically, it shows that the personality of leader would have profound impact on the type of contract their employees form and the likelihood that would perceive the breach of contract. Originality/value This research extends existing personality-psychological contract literature by examining the role of leaders' personalities in signaling to employees the type of contract that is formed and the perception of its breach. The role of power distance organizational culture as a signaling environment is also considered.