Chapter 6: The Moderating Effects of Transformational Leadership Behaviour and Firm Performance of SMEs in Sri Lanka

The fundamental goal of this research is to explore how transformational leadership (TL) influences the relationship between entrepreneurial orientation (EO) and the business performance of small and medium-sized enterprises (SMEs) in developing countries, with a specific emphasis on Sri Lanka. This study adopted a deductive-quantitative strategy and a cross-functional survey design. The sampling approach used was a simple random selection of SMEs registered in multiple databases in Sri Lanka. The survey consisted of 58 self-administered questions and received 150 valid responses from SME owner-managers, yielding a response rate of 37.5%. The results emphasize that EO and organizational success positively correlate with SMEs’ leadership style. In addition, a strong and moderately positive relationship was found between EO and the financial performance of SMEs. This investigation enhances and validates the resource-based view (RBV) theory and the full-range leadership theory (FRLT) for managing SMEs. This study contributes to the existing scientific literature on small business management by examining the impact of EO and TL on the business performance of SMEs in developing markets, with a primary emphasis on Sri Lanka.