Elsevier

The Leadership Quarterly

Volume 19, Issue 5, October 2008, Pages 582-594
The Leadership Quarterly

Towards understanding the direct and indirect effects of CEOs' transformational leadership on firm innovation

https://doi.org/10.1016/j.leaqua.2008.07.007Get rights and content

Abstract

This study seeks to advance understanding of how transformational leadership by top managers (CEOs) can affect their companies' innovativeness. We propose a model that includes both direct effects and indirect effects moderated by aspects of organizational culture, structure, and the external environment. The predicted effects are tested with data collected through multiple sources on 50 Taiwanese electronics and telecommunications companies. The results support the expectation that a positive relationship exists between CEO transformational leadership and organizational innovation. They also support most of the predicted moderating effects. The implications of these findings for practice and research are delineated.

Section snippets

Transformational leadership and organizational innovation

Bass et al. (2003) have characterized transformational leadership as encompassing five theoretically distinct components: charisma, idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration. They explain that both charisma and idealized influence have to do with serving as role models, with the former reflecting followers' attributions and the latter capturing leaders' behaviors. Leaders with idealized influence tend to place followers' needs over

Participants

We focused on a single industry so as to limit extraneous influences due to different industry types. Our sample was comprised of 50 Taiwanese companies from the electronics and telecommunications industry. This industry was selected because new product development and creative R&D efforts are critical for company survival due to the industry's rapid technological advances and highly competitive markets (Carey and Nahavandi, 1996, Balkin et al., 2000, Schilling and Hill, 1998).

To generate the

Results

We tested our hypotheses with the partial least squares (PLS) structural equations modeling technique (Wold, 1985), which is increasingly being adopted by leadership researchers (e.g., Bass et al., 2003, Howell et al., 2005, Shamir et al., 1998). This method does not make assumptions about (a) data distributions to estimate model parameters, (b) observation independence, or (c) variables metrics (Barclay, Higgins, & Thompson, 1995). As compared to more traditional techniques like regression,

Discussion and implications

This study has tested the direct and moderated effects of CEO transformational leadership on firm innovation. Our results supported a direct and positive effect of CEO transformational leadership on organizational innovation. The findings further revealed moderating effects by two attributes of the environment (uncertainty and competition) and four firm-level characteristics: climate of support for innovation, formalization, centralization, and empowerment, though in the last case, the effect

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