Mediating role of entrepreneurial orientation on relationship between transformational leadership, transactional leadership and performance of small and medium enterprises

The purpose of this study was to identify the transformational leadership, transactional leadership, entrepreneurial  orientation  and  organisational  performance  of  Small  and  Medium  Enterprises (SMEs)  in  Malaysia.  Four    main  constructs  were  selected  namely  transformational    leadership, transactional  leadership  ,  entrepreneurial  orientation  and  organisational  performance  based  on Resource  Based  Theory  (RBT)  by  Galbreath  (2005)  and  Transformational  Leadership  Theory  by Bass (1985). The research design used in this study was a survey method and data  were collected using quantitative approaches. The respondents were 401 owner or manager of SMEs operating in manufacturing  and  service  industries  in  Kuala  Lumpur  and  Selangor.  The  respondents  were selected    using    the    Stratified    Sampling   Technique.   The    study    instrument    applied    was questionnaires.  The  finding  showed  that  transformational  leadership  has  higher  impact  towards organisational  performance  (β=0.257,  S.E=0.055)  than  transactional  leadership  (β=0.220, S.E=0.054).Entrepreneurial    orientation    also    significantly    contributed    to    organisational performance (β=0.199, S.E=0.054). Furthermore, this study found that entrepreneurial orientation acted as partial mediator between leadership behaviour and organisational  performance (β=0.284, S.E= 0.256). The key implications of this study revealed that transformational leadership proved to be more efficient than transactional leadership in term of leadership behaviour. Thus, the leader of SMEs  need  to  practise  and  nurture  the  qualities  of  transformational  leadership,  and  focus  on entrepreneurial  orientation  in  order  to  achieve  better  organisational  performance.  This  study  also acknowledges  the  leadership  and  entrepreneurial  orientation  as  a  resource  and  capability  in organisationbecause the integration of these two elements are the yardstick for SMEs’ success in Malaysia.