Transformational Leadership and Financial Performance: The Mediating Role of Corporate Reputation

Abstract

This quantitative research study seeks to determine the effect of the transformational leadership style on the reputation and financial performance of manufacturing companies listed on the Indonesia Stock Exchange. Data was collected via a survey questionnaire distributed to manufacturing firms and processed using a structural equation model. The results indicate that transformational leadership can significantly improve a company's reputation, which in turn can improve its financial performance since company reputation was found to mediate the relationship between transformational leadership and financial performance. Of the four key dimensions of transformational, leadership, intellectual stimulation was found to be the most powerful indicator of style. Transformational leadership, however, was found not to have a significant direct impact on financial performance and could even worsen it. These findings give the implication that companies must pay attention to how they implement transformational leadership as in the absence of a strong corporate reputation, this style of leadership alone will not improve their financial performance. This research is expected to be helpful to companies engaged in the manufacturing sector.