Transformational Leadership and Employee Performance in Small and Medium Enterprises: Evidence from the Federal Capital Territory, Nigeria

Abstract

This study examines the effect of transformational leadership on employee performance in small and medium enterprises (SMEs) operating in the Federal Capital Territory (FCT), Abuja, Nigeria. Anchored on Bass's Transformational Leadership Theory, the study isolates three proxies of transformational leadership (idealized influence, individualized consideration, and intellectual stimulation) and examines their distinct effects on three performance outcomes (employee task performance, employee commitment to job roles, and employees generation of new ideas and initiatives). Using a quantitative, exploratory survey design, structured questionnaires were administered to employees of six purposively selected SMEs across the FCT, yielding 401 valid responses out of 411 administered. Data were analyzed using multiple regression in SPSS. The results show that idealized influence, individualized consideration, and intellectual stimulation each exert a positive and statistically significant effect on employee task performance. For employee commitment to job roles, individualized consideration emerged as the strongest predictor, followed by idealized influence, while intellectual stimulation was not significant. For idea generation and initiative, intellectual stimulation was the dominant predictor, idealized influence contributed positively, while individualized consideration showed an unexpected negative effect, suggesting that excessive personal supervision may constrain creative autonomy. The study concludes that transformational leadership is a multidimensional lever whose components operate differently depending on the performance outcome targeted, and recommends that SME leaders in Nigeria balance ethical role modeling, individualized mentorship, and intellectual challenge to optimize performance, commitment, and innovation.