The effect of transformational leadership on the profitability of Finnish firms
International Journal of Organizational Analysis
ISSN: 1934-8835
Article publication date: 14 March 2016
Abstract
Purpose
The purpose of this study is to find the effect of transformational leadership in profitability in different contexts.
Design/methodology/approach
Data are gathered of 200 Finnish firms. Profitability is measured by profitability ratios one to two years after the survey to take account of lagged effects. The sample is split into sub-samples with respect to four context variables indicated by prior research to be important for transformational leadership: size, competition, perceived environmental uncertainty (PEU) and research and development (R & D) effort. The effect of leadership dimensions on lagged profitability was assessed by partial least squares analysis.
Findings
Factor analysis gave a five-factor solution for transformational leadership variables indicating dimensions as: challenging, enabling, visioning, rewarding and contesting. Results did show that transformational leadership has a weak general effect on profitability. Results also offer some support for hypotheses for the strong effects of transformational leadership in different contexts. Enabling has an effect in low competition context; rewarding has an effect in low PEU, low competition and high R & D contexts; and contesting has an effect in large companies and in high PEU context.
Research limitations/implications
The commonly used Bass’ measurement of transformational leadership was not used here; instead, Kouzes and Posners’ modified version was in use. Factor analysis of this version resulted to the three factors only in a few loadings, even if high.
Practical implications
The importance of rewarding behavior of leaders is even stronger than previously thought. Thus, managers should concentrate more on the positive feedback of followers.
Originality/value
This paper fulfills a gap of research on leadership and profitability and also stresses the importance of situational variables which may affect the usefulness of different leadership styles.
Keywords
Acknowledgements
This study is financially supported by the Jenny and Antti Wihuri Foundation and that is gratefully acknowledged.
Citation
Brandt, T., Laitinen, E.K. and Laitinen, T. (2016), "The effect of transformational leadership on the profitability of Finnish firms", International Journal of Organizational Analysis, Vol. 24 No. 1, pp. 81-106. https://doi.org/10.1108/IJOA-03-2014-0744
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited