Effect of transformational and transactional leadership on SMEs in Indonesia

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Leadership has an important role in achieving the SMEs’ innovation and performance. One of the great concepts of leadership styles is the Burns’ (1978) concept, which divides leadership into two: transformational and transactional. This study analyzed the direct and indirect effect of transformational and transactional leadership on SMEs’ performance. This was conducted in seven regencies/cities in East Java Province, with 165 SMEs on superior indigenous food and beverage. The main research data were obtained by distributing the questionnaires. It uses path analysis to determine the direct and indirect effect using the LISREL software. The results showed that transformational leadership has a positive and significant effect on SMEs’ innovation and performance directly and indirectly. Transactional leadership has a direct positive and insignificant effect on SMEs’ innovation and performance. However, transactional leadership was found to have an indirect positive and significant effect on SMEs’ performance. In conclusion, transformational leadership is more important for improving SMEs’ performance in Indonesia than transactional. These results provide a practical contribution for SMEs’ leaders to improve transformational leadership, which is oriented towards charisma, intellectual stimulation, and individual consideration.

Acknowledgment
The researcher thanked the Ministry of Research, Technology and Higher Education, Republic of Indonesia, for funding this research.

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    • Figure 1. Research conceptual structure
    • Figure 2. The path coefficient of direct and indirect effects
    • Table 1. The result of the validity and reliability test
    • Table 2. Respondents’ general description
    • Table 3. Hypothesis testing results from the direct effect
    • Table 4. Hypothesis testing results from indirect effects
    • Table 5. Test results from the direct effect, indirect effect, and total effect
    • Conceptualization
      Nungky Viana Feranita, Alifian Nugraha, Sampir Andrean Sukoco
    • Data curation
      Nungky Viana Feranita
    • Funding acquisition
      Nungky Viana Feranita
    • Methodology
      Nungky Viana Feranita, Alifian Nugraha, Sampir Andrean Sukoco
    • Project administration
      Nungky Viana Feranita, Alifian Nugraha
    • Supervision
      Nungky Viana Feranita, Alifian Nugraha
    • Validation
      Nungky Viana Feranita, Alifian Nugraha, Sampir Andrean Sukoco
    • Investigation
      Alifian Nugraha, Sampir Andrean Sukoco
    • Software
      Alifian Nugraha
    • Formal Analysis
      Sampir Andrean Sukoco
    • Resources
      Sampir Andrean Sukoco
    • Visualization
      Sampir Andrean Sukoco
    • Writing – original draft
      Sampir Andrean Sukoco
    • Writing – review & editing
      Sampir Andrean Sukoco