Abstract
Competitive advantage is essential for firm survival in this competitive environment. Innovation is vital to attain competitive advantage over competitors. Leadership plays an important role in affecting innovation. The main objective of this study is to investigate whether it is a myth or a reality that transformational leadership promotes innovation. Transformational leadership is conceptualized using five dimensions: individualized influence (attributed), individualized influence (behavior), inspirational motivation, intellectual stimulation, and individualized consideration. On the other hand, innovation is conceptualized as the firm’s propensity to develop new or improved products. The relationship of transformational leadership and innovation is hypothesized as positive association. Cluster sampling technique is used to collect data. The data is collected from 400 manufacturing sector small and medium enterprises (SMEs) of Pakistan. Structural Equation Modeling (SEM) is applied to test the hypothesis. The results of the study demonstrate the existence of a positive significant influence of transformational leadership on innovation.