Assessing the Relationship between Leadership Styles and Performance of Small and Medium Enterprises in South Africa

Small and Medium Enterprises have become an important driver for economic growth and performance globally. It has been noted that there are few studies that have investigated how different leadership styles influence the performance of SMEs, as most have focused on large firms. Thus, this study assessed the effect of different leadership styles on the performance of SMEs in South Africa. A quantitative research method was adopted, and data were collected using a questionnaire. The population of the study was all SMEs in South Africa. The study considered a sample size of 342 SMEs. Participants were recruited using simple random sampling. The reliability and validity assessments indicated that the data collection instruments met the quality criteria, as each construct met the recommended threshold in terms of validity and reliability. The data were analyzed using SPSS and SmartPLS 4. The results of this study showed a positive and significant relationship between transformational leadership and employee well-being. Nevertheless, a positive, albeit insignificant, relationship was found between transformational leadership and customer satisfaction. Furthermore, the results showed that authentic leadership positively predicts both employee well-being and customer satisfaction among SMEs. These findings have several implications. The study’s findings extend the existing leadership literature by demonstrating that transformational and authentic leadership styles are crucial determinants of performance among SMEs in a developing country context. Essentially, this study developed a model that SMEs can adopt to improve their leadership in their businesses.