The Paradox of Leader-Member Exchange (LMX) Differentiation

Abstract. Drawing from the equity-equality paradigm and social interdependence theory, we examine cross-level effects of leader-member exchange (LMX) differentiation on both task performance and creativity using 461 team members and 98 team leaders in China. We demonstrate the paradoxical (i.e., positive and negative) effects of LMX differentiation in teams. Specifically, while LMX differentiation was positively, directly associated with task performance and creativity in more interdependent teams, it also had negative, indirect influences, through interactional justice climate, on these outcomes. Overall, in more interdependent teams, LMX differentiation had positive effects on employee performance-based outcomes, but in less interdependent teams, the effects were more negative. Our findings also provide practical implications for team governance.