Ethical leadership and turnover intention among MSME employees in Central Java: The mediating role of job satisfaction and the moderating role of organizational justice

Abstract

This study examines the effect of ethical leadership on turnover intention among Micro, Small, and Medium Enterprise (MSME) employees in Central Java, Indonesia, with job satisfaction as a mediating variable and perceived organizational justice as a moderating variable. A quantitative, cross-sectional survey was conducted with data collected from 150 MSME employees. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) based on Social Exchange Theory. The results show that ethical leadership significantly increases job satisfaction and directly reduces turnover intention. Job satisfaction significantly mediates the relationship between ethical leadership and turnover intention, indicating that ethical leadership lowers employees’ intention to leave by improving psychological satisfaction. However, job satisfaction does not have a significant direct effect on turnover intention, suggesting that satisfaction alone may not be sufficient to retain employees in MSMEs. In addition, perceived organizational justice does not significantly moderate the relationship between ethical leadership and turnover intention, implying that ethical leadership already reflects fairness perceptions in small and closely managed organizations. These findings highlight the importance of ethical leadership in strengthening employee satisfaction and reducing turnover intention. MSME owners and policymakers are encouraged to promote ethical leadership development through practical training programs to support employee retention in resource-constrained business environments.