Transformational and transactional leadership: influences on employee innovation

Purpose This article aims to examine the impact of transactional and transformational leadership on employee innovation; it also extends to determine whether knowledge management and employee characteristics have a mediating and moderating role to play in this relationship. Design/methodology/approach This study uses quantitative methods, and a convenience sample consists of 268 employees from Jordanian banks. The study used a questionnaire to collect data, which was analyzed by employing structural equation modeling. Findings Knowledge management served as a mediator between transactional leadership and innovation in the banking industry. Transactional leaders in a bank can promote safe and incremental innovation by clearly defining roles and responsibilities within the organizational structure. They can also motivate employees – especially those with higher education – to leverage their technical expertise to enhance overall organizational performance. Transformational leadership does not require extensive knowledge management to encourage innovation. Instead, it serves as a catalyst for creating a workplace culture that fosters effective sharing and application of knowledge, which is essential for innovation. Research limitations/implications Employees, especially those with advanced degrees, may be more motivated to innovate if knowledge management shifts toward transactional leadership, which offers clear goals and measurable metrics. This approach has the potential to spur the development and implementation of fresh ideas in the banking industry and related fields. Transformative leadership, on the other hand, can boost company morale by encouraging candor, information sharing, initiative and well-considered decisions from staff. Scholars and practitioners alike may benefit from this article’s main arguments. Practical implications In this study, a conceptual framework has been developed to assist researchers in understanding how transformational and transactional leadership styles, knowledge management processes, demographic factors and innovation interact within the research context. The study advocates for additional research to elucidate why transformational leadership exhibits a weaker correlation with knowledge management than transactional leadership. Social implications According to the study, both transactional and transformational leaders not only drive employees to complete daily work assignments but also inspire them to learn, exchange knowledge and apply new initiatives that benefit stakeholders and society at large. Originality/value This article contributes to the existing literature by providing a theoretical framework that is supported by empirical evidence from the banking sector. It explains how both transactional and transformational leaders drive innovation by sharing and applying knowledge to enhance innovative performance at the individual and organizational levels.