The effect of social capital and transformational leadership on the performance of rural enterprises

Abstract

The existence and performance of enterprises in rural areas become an interesting phenomenon as a solution for community welfare. The purpose of this study is to examine social capital and transformational leadership as factors that influence village-owned enterprises’ performance and the ability to innovate as a mediator. The research population consists of 216 village-owned enterprises. Riau Province in Indonesia is the place of research focus. This study used probability sampling with area sampling or cluster sampling. Respondents were managers, secretaries, treasury, or heads of business units of each village-owned enterprises. A total of 120 respondents participated in this analysis. The research hypotheses were tested using the partial least squares-structural equation modeling. The outcomes demonstrate that social capital and transformational leadership significantly positively affect enterprises’ performance with a p-value < 0.05, and the ability to innovate is proven to be a mediator with a p-value < 0.05. This study is relevant to the government program related to community welfare and offers implications for rural enterprises to improve social capital, leadership capabilities, and innovation.