Transformational Leadership, Transactional Leadership, and Employee Creativity in Entrepreneurial Firms

Drawing on organismic integration theory, we propose that transformational leadership and transactional leadership are most likely to predict outcomes, under uncertain social contexts, when accompanied by organizational financial and nonfinancial rewards. Using survey data from professional employees and their supervisors, from 260 Chinese enterprises, with less than 5 years of entrepreneurial experience, we found that (1) transformational leadership is not significantly related to employee creativity, while transactional leadership is positively related to followers’ creative behaviors, (2) synergy between transformational leadership and financial rewards and between transactional leadership and nonfinancial rewards accentuate the effect on employee creativity respectively, (3) psychological empowerment fully mediates the aforementioned relationship. These findings offer a new theoretical framework for future theory development of leadership.