Purpose Despite the immense amount of literature on ethical leadership and leader‒member exchange (LMX), little is known about how and when ethical leadership and LMX are more/less effective in prompting employee creativity. It is proposed that ethical leadership affects creativity through LMX. Furthermore, the authors draw upon an interactionist perspective and suggest that employee psychological capital is a dispositional boundary condition that influences the effectiveness of LMX in promoting employee creativity. The paper aims to discuss these issues. Design/methodology/approach Using a survey questionnaire, data were collected from 557 nurses and their supervisors working in public sector hospitals. The data were collected in two phases (time lagged) to avoid common method bias. Moderated mediation analysis was performed, using model 14 of PROCESS, to probe hypothesized relationships. Findings The results of the moderated mediation suggest that ethical leadership and LMX predict creativity. Ethical leadership indirectly affects creativity through LMX. Employee psychological capital moderates the direct effect of LMX and the indirect effect of ethical leadership on employee creativity. Research limitations/implications The study contributes to the extant literature, as the findings suggest that, being a dispositional boundary condition, psychological capital plays a contingent role in explaining LMX and the ethical role of leaders in fostering creativity. Moreover, the results also confirm previous findings, which suggested that ethical leaders promote creativity. Practical implications The findings imply that ethical leadership and exchange relationships are important for promoting creativity. Given that creativity is a complex product of an individual’s behavior, high psychological capital employees obtain benefits of quality exchange relationships and utilize them to elicit creativity. Managers are recommended to proactively develop and promote exchange relationships as well as positive psychological resources among employees to achieve creativity. Originality/value The study is unique in its scope and contribution, as it tries to develop an understanding of how and when ethical leadership and LMX foster employee creativity. Using an interactionist perspective to theorize psychological capital as a second-stage moderator is, thus, a unique contribution of this study.
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