The Effect of Transformational Leadership on Employees’ Innovative Behavior: The Mediating Role of Organizational Culture and Psychological Empowerment

Abstract

In today’s rapidly evolving business environment, employee innovative behavior (IB) is essential for organizational resilience and sustained growth. While transformational leadership (TL) is widely recognized as a factor influencing innovation, the combined mediating roles of organizational culture (OC) and psychological empowerment (PE)—particularly in the aviation sector of developing economies—remain underexplored. This study examines how TL influences IB both directly and indirectly through OC and PE, using survey data from 371 Ethiopian Airlines employees, analyzed via Partial Least Squares Structural Equation Modeling (PLS-SEM). Study results indicate that TL significantly enhances IB, both directly and through two key mediation pathways: by fostering an innovation-supportive OC and by increasing employees’ PE. Additionally, OC positively influences PE, suggesting a cascading mechanism where leadership and culture jointly empower employees to innovate. The study recommends that Ethiopian Airlines and similar organizations should cultivate TL behaviors such as vision-setting, empowerment, and innovation support; institutionalize empowerment practices like participatory decision-making and task autonomy; and foster an open, collaborative, and risk-tolerant OC. Together, these strategies support the development of an integrated innovation ecosystem capable of sustaining competitive advantage. This study adds to the body of research on leadership and innovation literature by offering novel empirical insights from a leading African airline, illustrating how leadership style and organizational context synergistically promote employee innovation.