INFLUENCE OF LEADERSHIP STYLES ON EMPLOYEE INNOVATIVE PERFORMANCE AND EMPLOYEE INNOVATIVE BEHAVIOUR AS MEDIATOR IN SMEs IN SAUDI ARABIA

Abstract

Despite the pivotal role of innovation in driving competitiveness and growth, many small and medium-sized enterprises (SMEs) in Saudi Arabia’s manufacturing sector report low levels of employee innovative performance, which are often linked to leadership practices and limited behavioural engagement. This challenge is particularly salient in the Saudi SME context, where centralised decision-making and hierarchical structures strongly shape organisational behaviour and innovation outcomes. This study investigates the influence of four leadership styles, namely transformational, autonomy-supportive, laissez-faire, and inclusive leadership, on employee innovative performance (EIP). The leadership styles were selected to enable comparative analysis within a single model. Transformational and laissez-faire leadership reflect established constructs from Full Range Leadership Theory, while autonomy-supportive leadership is grounded in the Self-Determination Theory and inclusive leadership is informed by the Leader Member Exchange Theory that capture participative and empowering leadership mechanisms increasingly relevant to innovation. Employee innovative behaviour (EIB), which is defined as the generation, promotion and implementation of novel ideas is examined as a mediating variable, whereas EIP reflects employees’ contributions to innovation outcomes. Drawing additionally on Diffusion of Innovation Theory, the study also tests the moderating roles of digital innovation and psychological empowerment. Using a quantitative cross-sectional design, data were collected from 379 leaders and managers in Saudi manufacturing SMEs and were analysed using Partial Least Squares Structural Equation Modelling (PLS SEM). Results indicate that transformational and inclusive leadership significantly enhance both EIB and EIP, whereas autonomy -supportive leadership does not demonstrate a significant effect and laissez-faire leadership shows comparatively weaker effects. EIB significantly mediates the relationship between leadership styles and EIP relationships, and digital innovation and psychological empowerment strengthen key leadership and performance relationships. The study advances understanding of leadership and innovation in SMEs by integrating behavioural and contextual mechanisms within a unified framework and offers practical guidance aligned with Saudi Vision 2030.