Leadership Styles and Firms’ Innovation, Mediating Role of Absorptive Capacity: Empirical Evidence from Emerging Economy

Abstract

This study contends explicitly that leadership styles (transformational and transactional) are positioned as a pylon for firms' innovation performance. Further, this study contemplates the intermediating inspiration of absorptive capacity (potential and realized) linking leadership styles (transformational and transactional) and firms' innovation. Data was collected from 301 permanent employees working in Pakistani manufacturing firms (food and tobacco) through self-administered questionnaires to test the proposed hypothesis of this study. The study's findings demonstrate a positive influence of leadership styles (transformational and transactional) on the firm's innovative performance. Moreover, both absorptive capacity dimensions (potential and realized) mediate the relationship between leadership styles (transformational and transactional) and innovative performance. This study demonstrates that both leadership styles (transformational and transactional) provide phenomenal path routes to augment firms' innovation. Overall, this study contributed a legitimate illustration of leadership styles strengthening firms' innovation, specifically transactional leadership style, encouraging results within the developing economy perspective.

Keywords

• Transformational Leadership
• Transactional Leadership
• Absorptive Capacity
• Potential Absorptive Capacity
• Realized Absorptive Capacity
• Firm Innovation