Impact of Democratic Leadership on Employee Innovative Behavior with Mediating Role of Psychological Safety and Creative Potential

Abstract

While leadership influence has been linked to organizational performance, the mechanism through which leadership development can foster sustainable innovation in SMEs with distinctive cultural contexts, including individualism/collectivism, is still not well understood. The purpose of this study is to investigate the role that democratic leadership plays in increasing employee innovative behavior (EIB) when organizations are working in situations that are characterized by high levels of hierarchical and collectivist cultures. This study fills a gap in the literature by investigating the ways in which leadership influences innovation in small- and medium-sized textile enterprises (SMEs) in Pakistan, including psychological safety and creative potential. This study discloses that participative leadership practices effectively drive sustained innovation especially in countries that embrace hierarchy and collectivism. The participants in this study comprised 389 employees from the textile industry, who completed validated self-report surveys of democratic leadership, psychological safety, creative potential, and EIB. This study used Structural Equation Modeling (SEM) to examine the direct and indirect effects of the variables using Smart PLS 4.1.0.8 software. The findings reveal that democratic leadership positively and significantly impacts EIB. Psychological safety mediates this relationship by creating a supportive environment for idea sharing, while creative potential acts as a stronger mediator, enabling employees to generate and implement novel ideas. These results highlight the critical role of democratic leadership in driving innovation through safe and creative organizational climates. This study extends leadership and innovation research by demonstrating the mechanisms through which democratic leadership fosters EIB. This study contributes to the understanding of leadership effectiveness in non-Western hierarchical cultures, providing actionable insights for managers and policymakers to promote sustainable innovation in SMEs.