Abstract
This article investigates the relationship between leadership styles and business financial performance of Small and Medium Enterprises (SMEs) in Tanzania. Previous empirical studies mainly focused on a direct influence of a single leadership style. However, there is a possibility that the combined leadership styles moderated by firm characteristics to have more influence on business performance especially in the SMEs setting. Specifically, the article analyses the relationship between four leadership styles (i.e. transactional, transformational, combination of transactional and transformational leadership and, passive-avoidant) and Business financial performance of SMEs considering the moderating effect of firm characteristics. Cross sectional survey design was adopted to carry out the research. The article is guided by Transactional leadership theory, transformational leadership theory and Contingency theory while Mean and multiple regressions were used to analyze data elicited from one hundred and ten (110) randomly selected SMEs. The results revealed that transformational leadership style and, combined transformational and transactional leadership styles had significant positive influence on SMEs’ financial performance. On the other hand, transactional leadership style had significant negative influence on SMEs’ financial performance. Passive- avoidant leadership style was found to have insignificant influence on SMEs’ financial performance. Furthermore, the results revealed that ownership structure and firm age moderated the influence of transactional leadership style, passive-avoidant leadership style and the combination of transformational and transactional leadership styles on SMEs’ financial performance. Among others, the article recommends that SMEs’ leaders have to apply the combination of transformational and transactional leadership styles if they want to realise relatively high SMEs’ financial performance.
Highlights
Small and Medium Enterprises (SMEs) have a strong influence on the economies of many countries (Aminu & Sharrif, 2015; Mahmudova & Kovas, 2018)
The results revealed that ownership structure and firm age moderated the influence of transactional leadership style, passive-avoidant leadership style and the combination of transformational and transactional leadership styles on SMEs’ financial performance
The results indicated that transformational leadership style and, the combination of both transformational and transactional leadership styles had significant positive influence on SMEs’ financial performance
Summary
Small and Medium Enterprises (SMEs) have a strong influence on the economies of many countries (Aminu & Sharrif, 2015; Mahmudova & Kovas, 2018). In many African countries, SMEs account for a significant share of production and employment and are directly connected to poverty reduction (Wolf, 2001). In Tanzania, SMEs sector represents small enterprises which employ 5 to people and medium enterprises employ to 99 people (MoIT, 2012). Leadership style is defined as the relatively consistent pattern of behavior that characterizes a leader (Arham, 2014). Leadership style is defined as a consistent pattern of behavior that a leader demonstrates as a leading strategy to influence people and guides them in a desired manner to achieve the desired business goals
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