EFFECT OF LEADERSHIP STYLE ON ORGANIZATIONAL PERFORMANCE: THE CASE OF SELECTED ETHIOPIAN BANKS

Abstract

This study has investigated the effects of leadership style on organizational performance in the case of Ethiopian Banks. The main objective of the study was to investigate the effect of both transactional and transformational leadership styles on banks performance in the Ethiopian context. Transformational leadership behaviors relevant in the study were idealized influence, inspirational motivation, intellectual stimulation and individual consideration and Transactional leadership behaviors considered relevant were constructive/contingent reward management by exception active(MEA) and management by exception passive (MEP). The study adopted a panel data design, and employed evaluative quantitative analysis method. Analysis was based on primary data generated through structured questioner which was developed by adapting the multifactor leadership questionnaire (MLQ) and time series data collected from national bank of Ethiopia’s financial audited report. Random effect regression model (LM model) was specified, estimated and evaluated. The result showed that both transformational andtransactional leadership styles had significant positive effect on the performance ofbanks in Ethiopian context.The study concluded that both transformational andtransactionalleadership styles were more appropriate in inducing performance in banks and, therefore, recommended to practice the combination of both transformational andtransactional leadership stylesaccording to the work situation.