Transformational or Transactional? A Comparison of the Effects of Leadership Styles on Firm Performance and Innovation in the Turkish Work Environment

Abstract

The ability of leaders to influence the behavior of individuals, groups, organizations, and communities keeps leadership as an ongoing topic of discussion. This study examines the impacts of transformational and transactional leadership on different types of firm performance. Accordingly, we attempt to explore the effects of these two leadership styles on various organizational performance indicators (e.g., innovation performance, financial performance, and non-financial performance) in the Turkish work environment, characterized by high power distance, low tolerance for uncertainty, short-term goal orientation, and an organizational culture consisting of feminine values. The study utilized structural equation modeling (SEM) to analyze data collected from 460 participants across 100 firms in the Marmara region—the heart of Türkiye’s industrial and service sectors—. It revealed that transactional leadership produced more positive, significant outcomes in financial and non-financial firm performance than transformational leadership in Turkish organizational culture. On the other hand, research results have shown that transformational leadership has a higher impact on firm innovation. JEL Classification: M19.