This study aims to examine how owner–managers’ despotic leadership influences employee unethical behaviour, while exploring the mediating role of employee psychosocial hazards – and the moderating role of regulatory enforcement.
Data were collected from 416 owner–managers and employees from small and medium-sized enterprises (SMEs) in Ghana. The hypotheses were tested using partial least squares structural equation modelling.
The results show that despotic leadership positively influences employee unethical behaviour. Employee psychosocial hazards also increase employee unethical behaviour and partly explain the relationship between despotic leadership and employee unethical behaviour. However, regulatory enforcement does not reduce the effect of employee psychosocial hazards on employee unethical behaviour.
Owner–managers should monitor psychosocial hazards such as excessive workload and job insecurity, as these conditions can increase employees’ vulnerability to unethical practices. Implementing practical interventions, supportive policies, open communication and strong ethical cultures can help reduce misconduct and improve organizational performance. In addition, leadership development, mentoring and targeted training can foster ethical and participative leadership, thereby reducing fear and stress within SMEs.
This study extends leadership and business ethics research by examining how despotics leadership fosters unethical employee behaviour through psychosocial hazards and negative reciprocity processes. By incorporating regulatory enforcement as a contextual boundary condition and focusing on SMEs in developing economies, it offers a more integrated and context-sensitive understanding of workplace misconduct.
