Main Article Content


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 the 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.

Article Details

How to Cite
Mushtaq , I., Chughtai , M. S., & Lashari, F. (2021). Leadership Styles and Firms’ Innovation, Mediating Role of Absorptive Capacity: Empirical Evidence from Emerging Economy. Management & Economics Research Journal, 3(2), 63-87.
Cited by


  1. Afsar, B., Masood, M., & Umrani, W. A. (2019). The role of job crafting and knowledge sharing on the effect of transformational leadership on innovative work behavior. Personnel Review, 48(5), 1186-1208.
  2. Afsar, B., & Umrani, W. A. (2019). Transformational leadership and innovative work behavior: The role of motivation to learn, task complexity and innovation climate. European Journal of Innovation Management, EJIM-, 257, 12-2018.
  3. Ahmed, S. S., Guozhu, J., Mubarik, S., Khan, M., & Khan, E. (2019). Intellectual capital and business performance: the role of dimensions of absorptive capacity. Journal of Intellectual Capital, 21(1), 23-39.
  4. Al-Husseini, S., El Beltagi, I., & Moizer, J. (2019). Transformational leadership and innovation: the mediating role of knowledge sharing amongst higher education faculty. International Journal of Leadership in Education, 1-24.
  5. Araujo, L., Dubois, A., & Gadde, L. E. (2003). The multiple boundaries of the firm. Journal of Management Studies, 40(5), 1255-1277.
  6. Avolio, B. J., & Bass, B. M. (1998). You can drag a horse to water but you can't make it drink unless it is thirsty. Journal of Leadership Studies, 5(1), 4-17.
  7. Avolio, B. J., Bass, B. M., & Jung, D. I. (1999). Re-examining the components of transformational and transactional leadership using the Multifactor Leadership. Journal of Occupational and Organizational Psychology, 72, 4.
  8. Bass, B. M. (1990). From transactional to transformational leadership: Learning to share the vision. Organizational Dynamics, 18(3), 19-31.
  9. Bass, B. M., & Avolio, B. J. (2000). MLQ: Multifactor leadership questionnaire. Mind Garden.
  10. Bass, B. M., Avolio, B. J., Jung, D. I., & Berson, Y. (2003). Predicting unit performance by assessing transformational and transactional leadership. Journal of Applied Psychology, 88(2), 207.
  11. Bass, B. M., & Bass, R. (2008). The Bass Handbook of Leadership. Theory, Research and Managerial Applications. Free Press.
  12. Bian, X., Sun, Y., Zuo, Z., Xi, J., Xiao, Y., Wang, D., & Xu, G. (2019). Transactional leadership and employee safety behavior: Impact of safety climate and psychological empowerment. Social Behavior and Personality: an international journal, 47(6), 1-9.
  13. Breevaart, K., Bakker, A., Hetland, J., Demerouti, E., Olsen, O. K., & Espevik, R. (2014). Daily transactional and transformational leadership and daily employee engagement. Journal of Occupational and Organizational Psychology, 87(1), 138-157.
  14. Caloghirou, Y., Kastelli, I., & Tsakanikas, A. (2004). Internal capabilities and external knowledge sources: complements or substitutes for innovative performance? Technovation, 24(1), 29-39.
  15. Carreiro, H., & Oliveira, T. (2019). Impact of transformational leadership on the diffusion of innovation in firms: Application to mobile cloud computing. Computers in Industry, 107, 104-113.
  16. Castillo, E. A., & Trinh, M. P. (2019). Catalyzing capacity: absorptive, adaptive, and generative leadership. Journal of Organizational Change Management, 32(3), 356-376.
  17. Cegarra-Navarro, J.-G., Eldridge, S., & Wensley, A. K. (2014). Counter-knowledge and realised absorptive capacity. European Management Journal, 32(2), 165-176.
  18. Chan, S. W., Ang, S. F., Andleeb, N., Ahmad, M., & Zaman, I. (2019). The influence of transformational leadership on organization innovation in Malaysian manufacturing industry. International Journal of Supply Chain Management, 8(2), 971-976.
  19. Chan, S. W., Omar, S. S., Ramlan, R., Ahmad, M. F., Zaman, I., & Idrus, N. (2018). Emotional Intelligence and Transformational Leadership Among Managers in Manufacturing Companies. International Journal of Engineering & Technology, 7(3.21), 1-4.
  20. Chan, S. W., Tiwari, S., Ramlan, R. B., & Ahmad, M. (2016). The Relationship between Leadership Styles and Quality Management Practices in Malaysian Manufacturing Firms. International Conference on Industrial Engineering and Operations Management Kuala Lumpur, Malaysia,
  21. Chang, J., Bai, X., & Li, J. J. (2015). The influence of leadership on product and process innovations in China: The contingent role of knowledge acquisition capability. Industrial Marketing Management, 50, 18-29.
  22. Chaudhary, S., & Batra, S. (2018). Absorptive capacity and small family firm performance: exploring the mediation processes. Journal of Knowledge Management, 22(6), 1201-1216.
  23. Chen, G., Farh, J.-L., Campbell-Bush, E. M., Wu, Z., & Wu, X. (2013). Teams as innovative systems: Multilevel motivational antecedents of innovation in R&D teams. Journal of Applied Psychology, 98(6), 1018.
  24. Chen, J.-X., Sharma, P., Zhan, W., & Liu, L. (2019). Demystifying the impact of CEO transformational leadership on firm performance: Interactive roles of exploratory innovation and environmental uncertainty. Journal of Business Research, 96, 85-96.
  25. Chen, Y., Wang, Y., Nevo, S., Benitez-Amado, J., & Kou, G. (2015). IT capabilities and product innovation performance: The roles of corporate entrepreneurship and competitive intensity. Information & Management, 52(6), 643-657.
  26. Cho, Y., Shin, M., Billing, T. K., & Bhagat, R. S. (2019). Transformational leadership, transactional leadership, and affective organizational commitment: a closer look at their relationships in two distinct national contexts. Asian Business & Management, 18(3), 187-210.
  27. Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 128-152.
  28. Darwish, T. K., Zeng, J., Rezaei Zadeh, M., & Haak-Saheem, W. (2018). Organizational learning of absorptive capacity and innovation: Does leadership matter? European Management Review, 17(1), 83-100.
  29. Daspit, J. J., Long, R. G., & Pearson, A. W. (2019). How familiness affects innovation outcomes via absorptive capacity: A dynamic capability perspective of the family firm. Journal of Family Business Strategy, 10(2), 133-143.
  30. Donate, M. J., & de Pablo, J. D. S. (2015). The role of knowledge-oriented leadership in knowledge management practices and innovation. Journal of Business Research, 68(2), 360-370.
  31. Dorfman, P. W., Howell, J. P., Hibino, S., Lee, J. K., Tate, U., & Bautista, A. (1997). Leadership in Western and Asian countries: Commonalities and differences in effective leadership processes across cultures. The Leadership Quarterly, 8(3), 233-274.
  32. Duan, Y., Wang, W., & Zhou, W. (2020). The multiple mediation effect of absorptive capacity on the organizational slack and innovation performance of high-tech manufacturing firms: Evidence from Chinese firms. International Journal of Production Economics, 229, 107754.
  33. Etikan, I., Musa, S. A., & Alkassim, R. S. (2016). Comparison of convenience sampling and purposive sampling. American journal of theoretical and applied statistics, 5(1), 1-4.
  34. Ferreras Mendez, J. L., Sanz Valle, R., & Alegre, J. (2018). Transformational leadership and absorptive capacity: an analysis of the organisational catalysts for this relationship. Technology Analysis & Strategic Management, 30(2), 211-226.
  35. Flatten, T., Adams, D., & Brettel, M. (2015). Fostering absorptive capacity through leadership: A cross-cultural analysis. Journal of World Business, 50(3), 519-534.
  36. García-Morales, V. J., Jiménez-Barrionuevo, M. M., & Gutiérrez-Gutiérrez, L. (2012). Transformational leadership influence on organizational performance through organizational learning and innovation. Journal of Business Research, 65(7), 1040-1050.
  37. Harman, D. (1967). A single factor test of common method variance. Journal of Psychology, 35(1967), 359-378.
  38. Hayes, A. F. (2015). An Index and Test of Linear Moderated Mediation. Multivariate Behavioral Research, 50(1), 1-22.
  39. Hayes, A. F. (2018). Introduction to Mediation, Moderation, and Conditional Process Analysis (Second ed.). The Guilford Press.
  40. Herrmann, D., & Felfe, J. (2014). Effects of leadership style, creativity technique and personal initiative on employee creativity. British Journal of Management, 25(2), 209-227.
  41. House, R. J. (1996). Path-goal theory of leadership: Lessons, legacy, and a reformulated theory. The Leadership Quarterly, 7(3), 323-352.
  42. Howell, J. M., & Hall-Merenda, K. E. (1999). The ties that bind: The impact of leader-member exchange, transformational and transactional leadership, and distance on predicting follower performance. Journal of Applied Psychology, 84(5), 680-694.
  43. Jansen, J. J., Van Den Bosch, F. A., & Volberda, H. W. (2005). Managing potential and realized absorptive capacity: how do organizational antecedents matter? Academy of Management Journal, 48(6), 999-1015.
  44. Jiang, Y., & Chen, C. C. (2018). Integrating knowledge activities for team innovation: Effects of transformational leadership. Journal of Management, 44(5), 1819-1847.
  45. Jones, G. K., Lanctot Jr, A., & Teegen, H. J. (2001). Determinants and performance impacts of external technology acquisition. Journal of Business Venturing, 16(3), 255-283.
  46. Jung, D. I., Chow, C., & Wu, A. (2003). The role of transformational leadership in enhancing organizational innovation: Hypotheses and some preliminary findings. The Leadership Quarterly, 14, 4. 525-544.
  47. Kark, R., Van Dijk, D., & Vashdi, D. R. (2018). Motivated or demotivated to be creative: The role of self-regulatory focus in transformational and transactional leadership processes. Applied Psychology, 67(1), 186-224.
  48. Kim, M.-S., & Koo, D.-W. (2017). Linking LMX, engagement, innovative behavior, and job performance in hotel employees. International Journal of Contemporary Hospitality Management, 29(12), 3044-3062.
  49. Kim, W. G., & Brymer, R. A. (2011). The effects of ethical leadership on manager job satisfaction, commitment, behavioral outcomes, and firm performance. International Journal of Hospitality Management, 30(4), 1020-1026.
  50. Koh, D., Lee, K., & Joshi, K. (2019). Transformational leadership and creativity: A meta-analytic review and identification of an integrated model. Journal of Organizational Behavior, 40(6), 625-650.
  51. Kotabe, M., Jiang, C. X., & Murray, J. Y. (2017). Examining the complementary effect of political networking capability with absorptive capacity on the innovative performance of emerging-market firms. Journal of Management, 43(4), 1131-1156.
  52. Leal-Rodríguez, A. L., Roldán, J. L., Ariza-Montes, J. A., & Leal-Millán, A. (2014). From potential absorptive capacity to innovation outcomes in project teams: The conditional mediating role of the realized absorptive capacity in a relational learning context. International Journal of Project Management, 32(6), 894-907.
  53. Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out of emerging economies. Journal of World Business, 50(4), 651-662.
  54. Leroy, H., Palanski, M. E., & Simons, T. (2012). Authentic leadership and behavioral integrity as drivers of follower commitment and performance. Journal of Business Ethics, 107(3), 255-264.
  55. Lisawadi, S., Ahmed, S. E., Reangsephet, O., & Shah, M. K. A. (2019). Simultaneous estimation of Cronbach’s alpha coefficients. Communications in Statistics-Theory and Methods, 48(13), 3236-3257.
  56. Medeiros, K. E., Watts, L. L., & Mumford, M. D. (2017). Thinking inside the box: Educating leaders to manage constraints. In Handbook of research on creative problem-solving skill development in higher education (pp. 25-50). IGI Global.
  57. Medina, M. N., Ramachandran, I., & Daspit, J. J. (2019). Collaboration Or Clash? Mapping The Effects Of Top Management Team Conflict On Firm Absorptive Capacity. International Journal of Innovation Management, 23(03), 1-29.
  58. Meyer, K. E., & Peng, M. W. (2016). Theoretical foundations of emerging economy business research. Journal of International Business Studies, 47(1), 3-22.
  59. Naguib, H. M., & Naem, A. (2018). The impact of transformational leadership on the organizational innovation. The International Journal of Social Sciences and Humanities Invention, 5(1), 4337-4343.
  60. Naqshbandi, M. M., & Tabche, I. (2018). The interplay of leadership, absorptive capacity, and organizational learning culture in open innovation: Testing a moderated mediation model. Technological Forecasting and Social Change, 133, 156-167.
  61. Nguyen, T. T., Mia, L., Winata, L., & Chong, V. K. (2017). Effect of transformational-leadership style and management control system on managerial performance. Journal of Business Research, 70, 202-213.
  62. Nunnally, J. C., & Bernstein, I. H. (1994). Psychometric theory (3rd ed ed.). McGraw-Hill.
  63. Ohiorhenuan, J. F. (2019). Leadership and Development in Africa. In African Economic Development (Nnadozie, E. and Jerome, A. ed., pp. 315-330). Emerald Publishing Limited.
  64. Padmanathan, K., Govindarajan, U., Ramachandaramurthy, V. K., & Jeevarathinam, B. (2018). Integrating solar photovoltaic energy conversion systems into industrial and commercial electrical energy utilization—A survey. Journal of Industrial Information Integration, 10, 39-54.
  65. Qian, X., Fu, Y., Xiang, T., Jiang, Y.-G., & Xue, X. (2019). Leader-based multi-scale attention deep architecture for person re-identification. IEEE transactions on pattern analysis and machine intelligence, 42(2), 371-385.
  66. Raisal, I., Tarofder, A. K., & Haleem, A. (2019). Interplay of Knowledge Creation Capability and Organizational Forgetting on Absorptive Capacity and Innovation Performance among SMEs: A Symmetrical Approaches. Asian Journal of Economics, Business and Accounting, 1-12.
  67. Rangus, K., & Černe, M. (2019). The impact of leadership influence tactics and employee openness toward others on innovation performance. R&D Management, 49(2), 168-179.
  68. Raven, R., & Walrave, B. (2020). Overcoming transformational failures through policy mixes in the dynamics of technological innovation systems. Technological Forecasting and Social Change, 153, 119297.
  69. Rawung, F. H., Wuryaningrat, N. F., & Elvinita, L. E. (2015). The influence of transformational and transactional leadership on knowledge sharing: An empirical study on small and medium businesses in Indonesia. Asian Academy of Management Journal, 20(1), 123-145.
  70. Rehman, S. U., Bhatti, A., & Chaudhry, N. I. (2019). Mediating effect of innovative culture and organizational learning between leadership styles at third-order and organizational performance in Malaysian SMEs. Journal of Global Entrepreneurship Research, 9(1), 1-24.
  71. Riaz, A., & Haider, M. H. (2010). Role of transformational and transactional leadership on job satisfaction and career satisfaction. Business and Economic horizons, 1(1), 29-38.
  72. Ritala, P., Olander, H., Michailova, S., & Husted, K. (2015). Knowledge sharing, knowledge leaking and relative innovation performance: An empirical study. Technovation, 35, 22-31.
  73. Rogers, E. M. (2003). Diffusion of Innovations (5th ed.). Free Press.
  74. Rogers, E. M. (2004). A prospective and retrospective look at the diffusion model. Journal of health communication, 9(S1), 13-19.
  75. Rothfelder, K., Ottenbacher, M. C., & Harrington, R. J. (2012). The impact of transformational, transactional and non-leadership styles on employee job satisfaction in the German hospitality industry. Tourism and Hospitality Research, 12(4), 201-214.
  76. Saleem, M. A., Bhutta, Z. M., Nauman, M., & Zahra, S. (2019). Enhancing performance and commitment through leadership and empowerment: An emerging economy perspective. International Journal of Bank Marketing, 37(1), 303-322.
  77. Sarooghi, H., Libaers, D., & Burkemper, A. (2015). Examining the relationship between creativity and innovation: A meta-analysis of organizational, cultural, and environmental factors. Journal of Business Venturing, 30(5), 714-731.
  78. Schuckert, M., Kim, T. T., Paek, S., & Lee, G. (2018). Motivate to innovate. International Journal of Contemporary Hospitality Management, 30(2), 776-796.
  79. Sheehan, M., Garavan, T. N., & Morley, M. J. (2020). Transformational leadership and work unit innovation: A dyadic two-wave investigation. Journal of Business Research, 109, 399-412.
  80. Sisodiya, S. R., Johnson, J. L., & Grégoire, Y. (2013). Inbound open innovation for enhanced performance: Enablers and opportunities. Industrial Marketing Management, 42(5), 836-849.
  81. Slåtten, T., & Mehmetoglu, M. (2011). What are the drivers for innovative behavior in frontline jobs? A study of the hospitality industry in Norway. Journal of Human Resources in Hospitality & Tourism, 10(3), 254-272.
  82. Slåtten, T., Svensson, G., & Sværi, S. (2011). Empowering leadership and the influence of a humorous work climate on service employees' creativity and innovative behaviour in frontline service jobs. International Journal of Quality and Service Sciences, 3(3), 267-284.
  83. Steele, L. M., Watts, L. L., & Den Hartog, D. N. (2018). Transformational leadership and innovation across cultures: A meta-analysis. Poster presented at the 33rd annual conference of the Society for Industrial and Organizational Psychology, , Chicago, IL.
  84. Tourish, D. (2014). Leadership, more or less? A processual, communication perspective on the role of agency in leadership theory. Leadership, 10(1), 79-98.
  85. Tracey, J. B., & Hinkin, T. R. (1996). How transformational leaders lead in the hospitality industry. International Journal of Hospitality Management, 15(2), 165-176.
  86. Wahyuni, D. U., Christiananta, B., & Eliyana, A. (2014). Influence of organizational commitment, transactional leadership, and servant leadership to the work motivation, work satisfaction and work performance of teachers at private senior high schools in Surabaya. Educational Research International, 3(2), 82-96.
  87. Wang, L., Zhao, J. Z., & Zhou, K. Z. (2018). How do incentives motivate absorptive capacity development? The mediating role of employee learning and relational contingencies. Journal of Business Research, 85, 226-237.
  88. Wang, Z., Ling, J., & Chok, J. I. (2020). Relational embeddedness and disruptive innovations: The mediating role of absorptive capacity. Journal of Engineering and Technology Management, 57, 101587.
  89. Watts, L. L., Steele, L. M., & Den Hartog, D. N. (2020). Uncertainty avoidance moderates the relationship between transformational leadership and innovation: A meta-analysis. Journal of International Business Studies, 51(1), 138-145.
  90. Weintraub, P., & McKee, M. (2019). Leadership for innovation in healthcare: an exploration. International journal of health policy and management, 8(3), 138-144.
  91. Woods, S. A., Mustafa, M. J., Anderson, N., & Sayer, B. (2018). Innovative work behavior and personality traits. Journal of Managerial Psychology, 33(1), 29-42.
  92. Wu, S., Ding, X., Liu, R., & Gao, H. (2019). How does IT capability affect open innovation performance? The mediating effect of absorptive capacity. European Journal of Innovation Management, 24(1), 43-65.
  93. Xenikou, A. (2017). Transformational leadership, transactional contingent reward, and organizational identification: The mediating effect of perceived innovation and goal culture orientations. Frontiers in Psychology, 8, 1-13.
  94. Xie, Xue, W., Li, L., Wang, A., Chen, Y., Zheng, Q., Wang, Y., & Li, X. (2018). Leadership style and innovation atmosphere in enterprises: An empirical study. Technological Forecasting and Social Change, 135, 257-265.
  95. Zahra, S. A., & George, G. (2002). Absorptive capacity: A review, reconceptualization, and extension. Academy of Management Review, 27(2), 185-203.
  96. Zheng, X., Yin, H., Liu, Y., & Ke, Z. (2016). Effects of leadership practices on professional learning communities: The mediating role of trust in colleagues. Asia Pacific Education Review, 17(3), 521-532.
  97. Zhou, E., Li, D., Madden, A., Chen, Y., Ding, Y., Kang, Q., & Su, H. (2019). Modeling Adoption Behavior for Innovation Diffusion. In: Taylor N., Christian-Lamb C., Martin M., Nardi B. (eds) Information in Contemporary Society. iConference 2019. Lecture Notes in Computer Science, vol 11420. Springer, Cham.