From Leadership to Innovation: The Mediating Role of Entrepreneurial Self-Efficacy in SMEs

https://doi.org/10.5281/zenodo.17863283

Abstract

Small and medium-sized enterprises (SMEs) are critical drivers of economic growth, yet they often face challenges related to resource constraints, market volatility, and limited managerial capabilities. This study investigates the role of transformational leadership (TL) in fostering corporate entrepreneurship (CE) among SME employees in Pakistan, with entrepreneurial self-efficacy (ESE) as a mediating mechanism. Drawing on Transformational Leadership Theory and Social Cognitive Theory, a quantitative, cross-sectional research design was employed. Data were collected from 200 SME employees through a structured questionnaire, and analyses were conducted using reliability, descriptive statistics, correlation, regression, and mediation techniques. Findings reveal that transformational leadership significantly enhances corporate entrepreneurship both directly and indirectly via entrepreneurial self-efficacy. Employees perceiving their leaders as transformational report higher confidence in their entrepreneurial abilities, which translates into greater innovation, risk-taking, and opportunity-seeking behaviors The study highlights the critical role of leadership and employee empowerment in promoting organizational entrepreneurial outcomes in SMEs. Implications for theory and practice, as well as avenues for future research, are discussed.