Abstract

This study investigates the effectiveness of the transformational leadership style in a developing country like Pakistan particularly on SMEs by exploring the impact of transformational leadership in determining a firm's proactivity, innovation, risk-taking, self-renewal and new business venturing activities. This study included entrepreneurial climate and entrepreneurial self-efficacy as important intervening factors.  The results revealed that transformational leadership has a positive impact on employee entrepreneurial self-efficacy and entrepreneurial climate, which consequently has a positive effect on the corporate entrepreneurship activities of SMEs. The findings give insight into how transformational leadership manifests itself in long-term corporate entrepreneurial activities such as proactivity, new business ventures, product innovation, self-renewal, and risk-taking. This is accomplished by transformational leaders cultivating employee entrepreneurial self-efficacy and establishing an entrepreneurial climate. The study emphasizes the critical role of specific leadership qualities, such as Idealized Influence, Inspirational Motivation, Individualized Consideration, and Intellectual Stimulation, in shaping employee perceptions of critical corporate entrepreneurial activities within small and medium-sized businesses. The study results revealed that by fostering an environment that values learning, creativity, and exploration, transformational leaders inspire employees to engage in entrepreneurial thinking and contribute innovative ideas to the organization.