Effects of Leadership Styles on Ethiopian Banking Industry Performance

doi:10.7176/ejbm/12-16-02

Abstract

The aim of the study was to examine the effect of leadership styles on organizational performance with specific reference to Commercial banks operate in Jimma Town. To achieve the objectives the study causal type of research and panel design was used to examine the amount of effect that leadership style could exert on the bank’s performance. The primary data sources were leaders on different levels and their subordinate employees while, the secondary data sources were annual report of individual banks and from audit financial report of National Bank of Ethiopia. Multifactor Leadership Questionnaire was adapted for collection of leadership styles representing questions. The descriptive and inferential analyses was conducted to analyze the collected data. Subsequently, the researcher employed Random Effect Model to investigate the extent of relationship between independent variables and dependent variables. The study results revealed that both transformational and transactional leadership have strong positive effect on the ROA. Thus, transformational that brings changes in working environment by inspiring and motivating employees for changes, creation, innovation, to go beyond from what they actually think they can; and transactional that reward employees and make recognition in exchange for the work they perform, giving close directions and guidance have positive and significant effect in promoting the performance of the bank. Based on the study results the provided recommendation was that the leaders of banks should focus on playing a role model by taking first step of what they talk about and keep consistent in their action in way that getting trust and loyalty from employees and in instilling confidence, commitment and vision in employees and the Stakeholders in the industry should consider taking banking in a non-traditional direction by placing more emphasis on understanding leadership style and its effects on improving results. Keywords : Effect; Leadership Style; Performance; Banks; Jimma; Ethiopia DOI: 10.7176/EJBM/12-16-02 Publication date: June 30th 2020

Highlights

Leadership, as defined by Northouse (2004), is a process whereby an individual influence a group of individuals to achieve a common goal
According to the respondents‟ perceptions, idealized influence is relatively most exhibited component of transformational leadership style followed by intellectual stimulation and individual consideration, while inspirational motivation is the least exhibited component of transformational leadership style with the mean score of only 8.91
The random effect regression was carried out to examine how and to what extent each type of leadership style relates to banks performance, which, is measured in terms, Return on total assets (ROA)

Summary

Introduction

Leadership, as defined by Northouse (2004), is a process whereby an individual influence a group of individuals to achieve a common goal. Leadership style is the way in which that process is carried out. According to Albrecht (2011), performance is the extent to which an organization achieves a set of pre-defined targets that are unique to its mission. Leadership style is a key determinant of the success or failure of any organization. Ensuring the effective leadership is becoming a critical issue for the success of modern business organization and the focus on it is increasing recently as the challenge of running business is enormous. Several theories had emerged and paved the way for the coming of modern leadership styles that can be understood in the organizational context

Objectives

Methods

Results

Conclusion