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Impact of Transformational and Transactional Leadership on Organizational Commitment and SMEs Firm Performance: A Comparative Analysis

Wayan Edi Arsawan, Wayan Sumetri, Ketut Pasek and Putu Santi Suryantini
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Wayan Edi Arsawan: International Business Management, State Polytechnic of Bali, Indonesia
Wayan Sumetri: Business Administration Department, State Polytechnic of Bali, Indonesia
Ketut Pasek: Faculty of Economic and Business, University of Udayana, Indonesia

Abstract of Economic, Finance and Management Outlook, 2016, vol. 6, 3

Abstract: The success of SMEs business is contingent upon a number of variables either internal or external. Many studies have been conducted to investigate the success variables, either empirically or theoretically. One of the most essential variables are leadership styles especially transformational leadership and also transactional leadership. This study has investigated the effects of leadership styles on organizational commitment and firm performance and organizational commitment on firm performance of SMEs in Bali Province Indonesia. Transformational leadership considered relevant in the study were idealized influenced, inspirational motivation, intellectual stimulation, individualized consideration. Transactional leadership were constructive/contingent reward and corrective/management by exception, organizational commitment were affective commitment, normative dan continuance and firm performance variables were sales growth, consumer service, success of new product and investment. The study followed a survey design using quitionaire Likert Scale to manager and asisten manager of 59 SMEs. The research method is quantitative using SEM -PLS. The result showed that leadership style had significant positive effect on organizational commitment and SMEs firm performance. The study concluded that transformational leadership style was more appropriate in inducing performance in small medium enterprises than transactional leadership style and, therefore, recommended transformational leadership style for the small enterprises with inbuilt strategies for transition, the enterprises developed, grew and sustainability.

Date: 2016
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