Psychological Capital and Employee Performance: A Latent Growth Modeling Approach

The positive core construct of psychological capital (consisting of efficacy, hope, optimism, and resilience) has been conceptually and empirically demonstrated to be related to employee performance. However, much of this work has relied on cross-sectional designs to examine these relationships. This study utilizes longitudinal data from a large financial service organization (N = 179 financial advisory-type employees) to examine withinindividual change in psychological capital over time and if this change relates to their change in performance. Latent growth modeling analyses revealed statistically significant within-individual change in psychological capital over time, and that this change in psychological capital was related to change in 2 types of performance outcomes (supervisor-rated performance and financial performance, i.e., individual sales revenue). Moreover, results of an exploratory cross-lagged panel analysis suggested a causal relationship such that prior psychological capital leads to subsequent performance rather than vice versa. Taken together, these results highlight the impact employees’ psychological capital may have on their subjectively and objectively measured performance over time and offer evidence-based practical guidelines for human resource selection, development, and performance management. digitalcommons.unl.edu 428 Pe t e r s o n e t a l . i n Pe r s o n n e l Ps y c h o l o g y 64 (2011) Psychological capital has been demonstrated to be important for performance at both individual and group levels of analyses (e.g., see Gooty, Gavin, Johnson, Frazier, & Snow, 2009; Luthans, Avolio, Avey, & Norman, 2007; Walumbwa, Luthans, Avey, & Oke, 2011; Walumbwa, Peterson, Avolio, & Hartnell, 2010). In addition, psychological capital has been shown to provide additive value to more established measures of employees’ positive behaviors, such as organizational citizenship (Walumbwa et al., 2011), as well as demographic and more traditional individual difference constructs such as core self-evaluations, personality traits, and person-organization and person-job fit (Avey, Luthans, & Youssef, 2010). Psychological capital has been defined as “an individual’s positive psychological state of development that is characterized by (a) having confidence (efficacy) to take on and put in the necessary effort to succeed at challenging tasks; (b) persevering toward goals and, when necessary, redirecting paths to goals (hope) in order to succeed; (c) making a positive attribution (optimism) about succeeding now and in the future; and (d) when beset by problems and adversity, sustaining and bouncing back and even beyond (resilience) to attain success” (Luthans, Youssef, & Avolio, 2007, p. 3). Despite the growing body of literature focusing on the relationship between psychological capital and job performance, this work has been limited to cross-sectional, correlation studies and has almost solely relied on supervisor ratings of employee performance. Although these studies have been valuable in helping to establish an initial relationship between employees’ level of psychological capital and their performance, they are limited in two important ways. First, previous data are limited concerning the dynamic nature of the psychological capital construct (e.g., withinperson change across time, or a growth trajectory is missing). Second, previous data are also limited regarding between-person differences in the change in psychological capital that can be used to predict performance. For example, according to a number of researchers (e.g., Bollen & Curren, 2006; Chan, 1998; Hackman, 2009; Ployhart & Vandenberg, 2010; Singer & Willett, 2003), an overreliance on simple cross-sectional methods with data collected at one point in time hinders the ability of researchers to capture withinand between-individual change. In order to more accurately test various theoretical mechanisms and assumptions regarding change, it is critical that we examine actual change in variables of interest using longitudinal research designs (Bollen & Curren, 2006; Singer & Willett, 2003). Ps yCa P & em P l o y e e Pe r f o r m a n C e: la t e n t Gr o w t h mo d e l i n G 429 Accordingly, the purpose of this study is to examine the relationship between employees’ psychological capital and their job performance using a design and analytic approach that attempts to overcome some of the limitations of previous research. This study builds from earlier research by setting out to investigate the variability of psychological capital over time within individual employees to determine if psychological capital remained relatively static or whether it significantly changed over time. Furthermore, we examine the impact of the change in study participants’ psychological capital on the change in their performance. Specifically, this study is designed to determine if a within-person increase (decrease) in psychological capital results in an increase (decrease) in an individual’s performance. Repeated measures of employees’ psychological capital and two measures of their performance (supervisor ratings and objective sales performance) are utilized to determine the nature and form of the proposed changes over time. This study uniquely contributes to the positive organizational behavior literature in three important ways. First, we determine whether the positive relationship that has been found in previous research between self-reported psychological capital and subjective ratings of performance generalizes to objective measures of performance. Second, although the relationship between psychological capital and performance has been conceptualized (e.g., Luthans, Youssef et al., 2007; Youssef & Luthans, in press) and empirically tested in cross-sectional research and short run studies with minimal intervals between the collection of data (Luthans, Avolio et al., 2007; Walumbwa et al., 2010), to date no research has directly tested the stability or variability of one’s psychological capital over time. A specific longitudinal test of the within-person variability of psychological capital is needed in order to draw more valid conclusions and practical implications pertaining to such change (Ployhart & Vandenberg, 2010). Finally, psychological capital has been clearly shown to be related to differences between individuals in their performance at a single point in time. A critical, yet unanswered, question is whether a within-person change in psychological capital predicts a change in that person’s performance. Theoretical Foundation and Hypotheses Conceptual Foundation for Psychological Capital Components Psychological capital is proposed as a common underlying capacity considered critical to human motivation, cognitive processing, striving for success, and resulting performance in the workplace. Consistent with the guidelines 430 Pe t e r s o n e t a l . i n Pe r s o n n e l Ps y c h o l o g y 64 (2011) for “theory borrowing” suggested by Whetten, Felin, and King (2009), psychological capital draws its foundation and explanatory mechanisms from theory building in work motivation (Stajkovic, 2006), positive psychology (Lopez & Snyder, 2009), and Bandura’s social cognition (1986, 1997) and agentic (2008) theories. For example, employees’ agency, exhibited through their intentions to deliberately determine the nature and magnitude of their psychological resource investment to attain work goals, can serve as an underlying mechanism for understanding the impact of psychological capital on performance outcomes (Bandura, 2008; Hannah & Luthans, 2008). It follows that psychological resource theories such as conservation of resources (COR) theory (Hobfoll, 2002; Wright & Hobfoll, 2004) can also be used to explain how employees are motivated to acquire, maintain, and foster the necessary resources as found in psychological capital to attain successful performance outcomes. Specifically, an individual’s motivational striving and choices can be explained by psychological resources such as efficacy, hope, optimism, and resilience that create higher-order “resource caravans” (or in this case, the core construct of psychological capital), which in turn impact motivation and performance (Hobfoll, 2002). Drawing from these theories, psychological capital has been defined as a higher-order core construct consisting of four positive psychological resources (Luthans, Avolio et al., 2007; Luthans, Youssef et al., 2007). First, is efficacy—“one’s conviction (or confidence) about his or her abilities to mobilize the motivation, cognitive resources, and courses of action needed to successfully execute a specific task within a given context” (Stajkovic & Luthans, 1998, p. 66). Second, is hope—“a positive motivational state that is based on an interactively derived sense of successful (a) agency (goal-directed energy) and (b) pathways (planning to meet goals)” (Snyder, Irving, & Anderson, 1991, p. 287). Third, is optimism—both a positivity-oriented future expectation that can be developed (Carver & Scheier, 2002) and an attribution style that interprets positive events through personal, permanent, and pervasive causes and negative events through external, temporary and situation-specific ones (Seligman, 1998). Fourth and finally, is resilience—“the capacity to rebound or bounce back from adversity, conflict, failure, or even positive events, progress, and increased responsibility” (Luthans, 2002, p. 702). When these four positive resources are combined, the result has been conceptually (Luthans, Youssef et al., 2007; Stajkovic, 2006) and empirically (Luthans, Avolio et al., 2007) demonstrated to be a higher-order, multidimensional construct labeled psychological capital. Specifically, psychological capital is the underlying core construct shared among its four component resources that is “one’s positive appraisal of circumstances and probability for Ps yCa P & em P l o y e e Pe r f o r m a n C e: la t e n t Gr o w t h mo d e l i n G 431 success based on motivated effort and perseverance” that can predict goal attainment and performance (Luthans, Avolio et al., 2007, p. 550). The Malleability of Psychological Capital Perhaps the key distinguishing feature of one’s psychological capital and potentially important contribution to practice is its openness to change and development. Although not denying that the four individual components of psychological capital may seem to possess some level of stable qualities and have been represented in some of the earlier psychological literature as such, recent research shows that these components can be developed. For example, Bandura (1997, 2000) has demonstrated effective strategies to increase self-efficacy. Snyder (2000) also provided evidence that hope was developable and published a measure called the “state-hope scale” (Snyder et al., 1996). Furthermore, Carver and Scheier (2002) have recently discussed strategies to develop optimism, and Shifren and Hooker (1995) have demonstrated its situational measurement. Seligman’s (1998) widely recognized work has emphasized “learned optimism.” As to resilience, Masten and Reed (2002) have provided successful strategies for developmental interventions, and Wagnild and Young (1993) have developed a state-like measure of resilience. Previous research has also shown that psychological capital as a whole has more measurement stability than emotional states but is not as stable as personality or self-evaluation traits (Luthans, Avolio et al., 2007) and has been shown to develop through targeted interventions (Luthans, Avey, Avolio, & Peterson, 2010; Luthans, Avey, & Patera, 2008). We therefore expect and set out to examine here whether measures of psychological capital show signs of variability within individuals over time and how those changes predict performance. Bandura’s (1986, 1997) social cognition and efficacy theory in general and his more recent emphasis on human agency (Bandura, 2008) in particular provides further explanation for the malleability of psychological capital through, for example, changes in efficacy due to mastery experiences, modeling, and feedback. Specifically, social cognitive theory identifies important components of agentic processing such as symbolizing, forethought, observation, self-regulation, and self-reflection, which can impact one’s level of agency to persevere toward success. Besides these theoretical explanations for the malleability of psychological capital, there is recent empirical evidence that psychological capital may change based upon persistent, consistent information received from one’s leader (see Norman, Avolio, & Luthans, 2010). For example, psychological capital may be enhanced or decreased based upon repeated feedback from leaders, peers, or even the job itself. Imagine sales associates with a relatively low level of psychological capital who have not performed up to 432 Pe t e r s o n e t a l . i n Pe r s o n n e l Ps y c h o l o g y 64 (2011) expectations. If their leader were to repeatedly deliver reassuring, encouraging feedback versus constant criticism, they might begin to feel more optimistic or confident in increasing future levels of performance. It is important to note that because the individual’s components of psychological capital work together synergistically, if one component is affected (e.g., optimism), it is likely the others (e.g., hope, efficacy, and/or resilience) will also be affected over time. Thus, employees’ level of psychological capital may rise or fall over time, leading to the first hypothesis for this study as follows: Hypothesis 1: There will be a change in participants’ psychological capital over time; that is, there will be within-person variability in a participant’s level of psychological capital. Change in Psychological Capital and Employee Performance Over Time As indicated, previous research has demonstrated that employees’ psychological capital is positively related to their performance (see Luthans, Avolio et al., 2007; Walumbwa et al., 2010), with most of this research using supervisor ratings rather than objective measures. Moreover, even though the basic premise of psychological capital is its “state-like” malleability, prior studies have used static measures of psychological capital (at one point in time) to predict performance at one later point in time. No prior research has examined the dynamic relationship between psychological capital and performance, that is, whether a within-person change in employees’ level of psychological capital is related to a within-person change in their performance over time. Both objective performance (i.e., individual sales data) and the within-person variability of psychological capital in relationship to performance change over time are the foci of this study. The state-like, dynamic nature of psychological capital was given attention in the above theoretical discussion in terms of agentic mechanisms (see Bandura, 2008) and resource theories such as COR (Wright & Hobfoll, 2004). These theories provide support to the idea that employees proactively build up their psychological capital resources over time to improve their future performance. In addition to the person’s influence, employees’ level of psychological capital is also subject to change (increase or decrease) depending on the work context such as the amount of social support they receive, leadership, and/or organizational climate. Moreover, macrolevel factors such as the state of the economy or dramatic personal events can also affect the level of psychological capital of employees. The theoretical prediction would be a within-person increase or decrease in psychological capital will result in an increase or decrease in subsequent performance. For example, an employee who has just joined a work team or Ps yCa P & em P l o y e e Pe r f o r m a n C e: la t e n t Gr o w t h mo d e l i n G 433 has encountered a temporary setback to goal accomplishment may have a relatively lower level of psychological capital. However, this individual can intentionally and proactively (i.e., agentically) build up his/her psychological capital (i.e., higher levels of optimism, efficacy, hope, and resilience) in order to improve performance relatively quickly or, in the case of encountering a problem or obstacle, to pursue an alternative pathway for goal attainment and ultimate success. Thus, an increase in employees’ psychological capital provides more resources and a stronger foundation for them to draw from and achieve an increase in subsequent performance. Similarly, a decrease in psychological capital may deprive individuals and take away from such a reservoir of resources, resulting in the employee having lower subsequent performance. For example, this reservoir of psychological capital that employees have can be metaphorically depicted as a bank account (Avolio & Luthans, 2006). As discussed above, the malleability of psychological capital suggests that employees are continuously depositing to or withdrawing from their psychological capital bank account that is expended on striving for or attaining (or detracting from when the account balance goes down) goals and resulting performance outcomes. Based on the malleability of psychological capital induced by the context and/or the individual and the notion that psychological capital represents a reservoir or bank account of resources a person can draw from for goal attainment, we expect that an employee’s increase (decrease) in psychological capital will be related to an increase (decrease) in supervisor-rated performance and in objective performance (i.e., sales revenue). Thus, we hypothesize the following: Hypothesis 2a: Change in employee’s level of psychological capital (represented by the slope of psychological capital) is positively related to change in supervisor-rated performance. Hypothesis 2b: Change in employee’s level of psychological capital (represented by the slope of psychological capital) is positively related to change in sales revenue.