Essay: To what extent is the relationship between LMX and performance mediated by PsyCap?

Research proposal
Tom Friedman (2005) already recognized in his book ‘The World is Flat’, that the new ‘flat’ world is one where technology and collaborative economies have created an entirely new playing field. It will increase competition and require not only an emphasis on new skills sets, but a much more self-reliant, creative and innovative mindset. Employee’s performance is important in today’s economy in which organizations have to gain a competitive advantage to be sustainable. There is an ongoing call for leadership research to quantify how leadership behaviors can impact organizational outcomes such as firm performance (Avolio, 2007). How leaders manage their workforce has a big impact on employee’s performance.
Employee’s performance can be seen as a combination of ability, support and effort (Schermerhorn, Gardner, & Martin, 1990). As said earlier, employee’s performance is important for organizations to gain a competitive advantage. Leaders can help employees to perform better in several ways. In this study, there will be looked at the influence of leaders on members through leader-member exchange (LMX), which can be seen as the quality of the relationship between the leader and the employee, on performance. The quality of this relationship is predictive of outcomes at the individual, group, and organizational levels, this is stated in the LMX theory (Graen, & Uhl-Bien, 1995). That is why this study will test the relationship between LMX and performance. This relationship will be mediated by psychological capital (PsyCap). LMX will lead to higher levels of PsyCap, because when the quality of the relationship between members and leaders is high, members will have more confidence about good outcomes (PsyCap). At long last, this will lead to better performance of the members. The relationship between LMX and performance have been tested a few time (Liden, & Graen (1980); Scandura, & Schrieheim (1994); Howell, & Hall-Merenda (1999). None of them has taken into account the mediating effect of PsyCap on this relationship.
This article is scientifically relevant, because this study seeks to integrate the followers in the leadership process, namely with LMX and its influence on performance. Avolio (2007) already suggested that leadership theory has “reached a point in its development at which it needs to move to the next level of integration”. Several researchers have already called for integrating all actors in the leadership process, namely, followers, leaders, and the context they are embedded in. Only a dearth of research has actually tested the role of followers in the leadership process while offering conclusions about their impact on the bottom line (Avolio, 2007). Another contribution is that this study will test the mediating effect of PsyCap on the relationship between LMX and performance. For organizations this paper is also important, because organizations have to gain a competitive advantage to be sustainable in today’s economy. That is why it is important to improve employee’s performance. This paper will test if the quality of the relationship between leader and employee has a positive effect on performance. For organizations this is important to make their leaders aware of the effect they have on their employee’s performance, so they can improve the quality of the relationship with their employees.
The aim of this research is to enlarge the body of research about the influence of LMX on performance. PsyCap will be taken into account as a mediator of this relationship. There will be tested if PsyCap mediates the relationship as a composite construct or each of the individual elements of PsyCap, which has never been tested before. Therefore, the research question in this paper is:
“To what extent is the relationship between LMX and performance mediated by PsyCap?”
This paper will first describe LMX, performance and how this relates to each other. After that PsyCap is described and the mediating effect of PsyCap on the relation between LMX on performance is explained.