When Structure Undermines Innovation: A Multilevel Model of Ethical Climate, Cognitive Closure, and Entrepreneurial Creativity

In today’s fast-changing and uncertain business landscape, employees’ entrepreneurial creativity plays a critical role in driving organizational innovation and transformation. Within the context of entrepreneurial creativity, ethical climate has traditionally been seen as a positive institutional force by virtue of its shaping of employee behavior. However, its potential constraining effects on creativity have received limited attention. In a bid to address this lack, this study examines the double-edged nature of a rule-oriented ethical climate. For the purpose of this examination, a framework was developed, one that links institutional norms, individual cognitive motivation, and creative behavior from a social cognitive perspective. More specifically, it investigates whether the need for cognitive closure(NFC) mediates the relationship between rule-oriented ethical climate and entrepreneurial creativity, and whether constructive rule beliefs(CRB) moderate this process by buffering the negative effects of institutional rigidity. Drawing on three-wave data from 552 employees across 89 teams in nine small and medium-sized cosmetics firms in Southwest China, it was found that that a rule-oriented ethical climate can indeed suppress entrepreneurial creativity by increasing employees’ NFC. However, it was also found that this indirect effect is significantly weakened among employees who perceive rules as purposeful and adaptable, as opposed to rigid. This finding serves to highlight the moderating role of CRB. This study contributes to a more nuanced understanding of ethical climate by revealing its capacity to both facilitate and inhibit innovation. It also underscores the importance of employees’ subjective interpretation of rules in shaping their creative engagement within institutional systems. From a practical perspective, the findings suggest that organizations which foster flexible rule interpretation may help these organizations balance control with innovation.