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This study aims to examine the mechanism of action of ethical leadership by testing the direct and indirect effects of ethical leadership on employee work outcomes (i.e. individual job satisfaction, work engagement and customer-oriented behavior) and the moderating effects of group job satisfaction on the relationship between ethical leadership and its consequences.

A hierarchical linear model is used. The valid sample is composed of 285 front-line service personnel in 56 work groups from five hotels and five golf clubs in South China.

Results indicate that group job satisfaction has a significant moderating effect on the relationship between ethical leadership and employee work engagement. That is, compared with that in groups with high job satisfaction, the relationship between ethical leadership and employee work engagement is significantly more positive in groups with low job satisfaction. Employee work attitudes (including individual job satisfaction and work engagement) mediate the effect of ethical leadership on employee customer-oriented behavior.

The main limitations are as follows. First, some of the reported relationships may be affected by common method bias, as our study collected data from a single source. Second, whether the findings can be generalized to other industries in other countries remains unknown. Third, as the current study is based on a cross-sectional design, establishing causality is difficult among the study variables.

The findings show that the managers in hospitality and tourism companies should adopt ethical leadership to enhance employee customer-oriented behavior by improving positive work attitudes. At the same time, hospitality and tourism companies should improve group job satisfaction as a substitute for ethical leadership in the absence of ethical leadership.

A key contribution of this research is demonstrating how and when the effects of ethical leadership occur by analyzing the mediating and moderating effects in the same study. This study systematically examines the mediating effect of employee work attitudes on the influence of ethical leadership on employee work behavior and discusses the moderating effect of the group-level variable. The findings extend ethical leadership theory and make a contribution to the existing research on discussing the substitutes for the leadership model.