The Effect of Transformational Leadership on Exploratory and Exploitative Innovation: The Mediating Role of Entrepreneurial Orientation

The Effect of Transformational Leadership on Exploratory and Exploitative Innovation: The Mediating Role of Entrepreneurial Orientation | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article The Effect of Transformational Leadership on Exploratory and Exploitative Innovation: The Mediating Role of Entrepreneurial Orientation Firnus Alemayehu Fekadie, Aschalew Degoma Durie, Hailemariam Kebede Gelgele This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7826827/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract The importance of transformational leadership in driving innovation has been emphasized through extensive research; however, the specific mechanisms that connect transformational leadership to innovation capabilities, including both exploitative and exploratory innovation, remain largely unexplored. This study seeks to examine whether entrepreneurial orientation serves as a mediator in the connection between transformational leadership and both exploratory and exploitative innovation within Ethiopian manufacturing firms, utilizing upper echelon theory and resource-based theory as its foundation. To achieve this, a quantitative research approach employing structural equation modelling was utilized, encompassing a sample of 624 individuals drawn from 208 medium and large-scale manufacturing companies. The firms in the sample were chosen through a stratified sampling technique from an overall pool of 600 medium and large manufacturing entities. The findings of the study indicate that transformational leadership significantly contributes to promoting both exploratory and exploitative innovation, revealing a strong relationship. Additionally, transformational leaders enhance exploratory innovation by prioritizing entrepreneurial orientation. Nevertheless, entrepreneurial orientation does not influence the connection between transformational leadership and exploitative innovation. Consequently, this study adds to upper-echelon research by elucidating the pathway through which transformational leaders facilitate exploratory and exploitative innovations, while also theoretically establishing and empirically confirming the distinct mediating role of entrepreneurial orientation. JEL Code: M12, L26, O31 Transformational leadership Entrepreneurial orientation Exploratory innovation Exploitative innovation Figures Figure 1 Figure 2 Background of the Study Organisations now face numerous challenges in the face of the increasingly complex and unpredictable external environment, such as customer demand changes, technological changes, regulatory changes, competitiveness, and globalisation [1,2]. Innovation capability, which involves developing and implementing new ideas or practices related to products, services, process and programmes [3,4 ]is widely recognised as a key dynamic competence driving organizational success and adaptability [5, 6,]. As a result, organisations are increasingly focussing on strengthening their innovation capabilities to overcome external turbulences that could have significant impact on their performance [7]. Innovation has been found to be important for organizational performance and survival in volatile conditions [8 ], critical for gaining and sustaining competitive advantage [9 ], and allowing organizations to respond to new market conditions and demands [10 ]. Yet, many small to medium-sized firms in emerging and developing countries lack the resources and capital to innovate and tend to become imitators rather than innovators [9 ]. In light of these challenges, both researchers and practitioners are increasingly dedicating their efforts to identifying the antecedents, innovative mechanisms, and optimal solutions necessary to enhance the innovation capabilities of firms operating in these nations [11 ]. A growing body of research indicates that one of the main forces behind innovation is transformational leadership. A supportive environment for developing employee skills and encouraging creative practices is largely dependent on transformational leadership [12 ]. Employees in organizations are known to be inspired to adopt positive attitudes and behaviours by it [13 ]. According to research, transformational leadership fosters innovation more than other leadership philosophies [14 ]. The precise ways in which this leadership style influences various forms of innovation, such as exploitative and exploratory innovation, have not yet been thoroughly investigated. It's still unclear whether transformational leadership has a direct effect on these innovations or if other organizational factors act as a mediating factor. In a similar vein, one important organizational component that affects innovation is entrepreneurial orientation. Creative ideas, which are essential for introducing new products, adjusting to a constantly shifting environment, conquering innovation obstacles, increasing innovation efficiency, and foreseeing innovation needs, can be found in an entrepreneurial mind-set. Previous research has reported that there is a positive relationship between entrepreneurial orientation and innovation [15, 16]. Moreover, the previous studies found that transformational leadership has a considerable influence on entrepreneurial orientation [17, 18]. Although the relationships have been well established between innovation, entrepreneurial orientation and transformational leadership, past research has not exhaustively investigated this within one model. Moreover, most of the studies that have been conducted on innovation and leadership within the manufacturing industry have been done on the economies of developed nations. Nevertheless, minimal research has been conducted regarding the manufacturing sector in such countries as Ethiopia that is rapidly becoming more important. This sector plays an important role in Ethiopian economy and plays a critical role in ensuring that the GDP increases and jobs are created. But various reports and studies indicate that Ethiopian manufacturers are deficient in managerial and technical expertise, and this fact leads to less innovative practices in the industry. Although there is a little empirical research on the variables that influence the innovation performance of Ethiopian manufacturing companies the study by [19 ] touched up some relevant issues. According to its research, the most important problems faced manufacturing companies are shortage of skilled labour, high cost of innovation, a culture of innovation, and a perception economic risk. More research is needed necessary to fully understand the complexities involved. This makes the role of leadership and its implication for manufacturing companies an important issue which has so far received little attention or study in the literature [20], and that is also the case in Ethiopia. Consequently, the purpose of this study was to look into the role of entrepreneurship orientation in mediating the relationship between transformational leadership and innovation; therefore, the study addresses the following two research questions: (a) how does transformational leadership influence exploratory and exploitative innovation in Ethiopian manufacturing firms? And (b) how does entrepreneurial orientation influence the relationship between transformational leadership and innovation? To better understand the relationships among transformational leadership, entrepreneurial orientation, and innovation, our examination primarily relies on Resource-based Theory (RBT) and Upper Echelon Theory. The Resource-Based View suggests that organizations can achieve a sustainable competitive edge over rivals by effectively leveraging their unique skills and capabilities [21 ]. This concept assumes that the resources of a company include both tangible and intangible assets used to design and implement strategies to increase efficiency and effectiveness. On the contrary, the upper-level theory of leadership argues that organizational outcomes, including strategy and efficiency, reflect the values and cognitive frameworks of senior managers [22]. Researchers believe their study will provide important insights for both theoretical understanding and practical application. Firstly, this research advances the field of innovation by presenting a detailed model that connects transformational leadership to entrepreneurial orientation and innovation. Secondly, the findings of this research will encourage transformational leaders in Ethiopian manufacturing companies to prioritize entrepreneurial orientation as a vital component for promoting exploratory innovation. Theoretical Foundation This research framework strongly based on Upper Echelon and Resource-Based Theory (RBT). According to Upper Echelon Theory, the values, personality and experience of the leader have a significant impact on the action of the leader. This theory emphasises how backgrounds and characteristics of top management strongly influence organizational performance, strategic decision, and overall performance of the company. These elements are essential to the design of strategies that work and achievement of excellent results [22]. In addition top managers play a key role in setting organizational policies, making strategic decisions, and guiding organisations. Their actions have the potential to revolutionize the company and have a positive effect on employee dynamics [23 ]. Top managers are therefore essential drivers of a company's activities and exceptional performance [22,24 ] The Resource-Based Theory (RBT), developed by [25], serves as another fundamental pillar this investigation. According to RBT, companies can gain a permanent competitive advantage over their competitors by making strategic use of their unique skills and talents [21 ]. This theory holds that organizational resources include both tangible and intangible assets that companies use to design and implement strategies that aim at maximizing efficiency and effectiveness [25 ]. However, intangible resources hold the key to a long-term competitive advantage because they are significantly more difficult to define and replicate [26]. According to [27 ] entrepreneurship orientation is a strategic resource for firms because it "reflects the firm's philosophy of how to conduct business through a deeply rooted set of values and beliefs that guides the firm's attempt to achieve superior performance". As a result, in this study, entrepreneurial orientation is considered as organisations' strategic resources for improved innovation performance [28 ]. Transformational leadership and Innovation Leadership is widely recognized as a crucial factor influencing innovation. Leaders impact various organizational characteristics such as culture, strategy, structure, reward systems, and resource allocation [29 ]. In addition, they play a key role in inspiring creativity in their followers [30 ]. Research on innovation shows that each leadership style has a significant impact on different aspects of innovation capacity [1 ]. Among these styles, transformational leadership is recognized as one of the most effective in promoting the capacity of innovation within organizations [9,31 ]. Transformational leaders promote intellectual stimulation, encouraging individuals to think outside the box, perspective-shift on problems, and engage in generative and exploratory thinking processes [32] When individuals are inspired to re-think and know that their ideas are appreciated by their leaders, they are more likely to come up with innovative ideas that foster both exploitative and exploratory innovations[33 ] . Transformational leaders who demonstrate an idealized impact can build trust and respect in their work force. They express confidence in the organisation's vision, inspire admiration and commitment, share risk with their followers and highlight the importance of a shared understanding of the mission of the organisation [34] . Employees who identify with a common sense of purpose rather than acting in their own interests will provide the necessary cognitive support for innovation activities [35 ] . It is evident from empirical research that transformational leadership has a major positive influence on different forms of innovation [ 14 ,4 9 ] . According to [36 ] transformational leadership successfully promotes experimentation and open communication, both of which are essential for improving innovation capabilities. Transformational leadership directly influences a firm's innovation capacity by improving learning processes [37 ] and significantly impacts organizational innovation performance through innovation openness [4 ]. Furthermore, transformational leaders establish a positive culture for knowledge sharing, which distinctly boosts innovation [9 ] . The literature does, however, show a significant disparity in how transformational leadership and both exploitative and exploratory innovation are related. .Some studies argue that transformational leaders prioritize radical innovations over efficiency or incremental improvements [38 ], while others assert that they excel in facilitating efficiency and incremental changes [39 ]. Thus, it is evident that the relationship between transformational leadership and innovation needs further investigation. Therefore, we propose the following hypothesis: Hypothesis 1a: Transformational leadership has a positive correlation with exploratory innovation. Hypothesis 1b: Transformational leadership has a positive correlation with exploitative innovation. The link between Transformational leadership and Entrepreneurial Orientation Transformational leadership is a key to developing and succeeding in entrepreneurship orientation [18]. Transformational leaders encourage employees to think outside the box, generate innovative ideas about existing practices and products and to change. This in turn enhances their entrepreneurial mind-sets and encourages entrepreneurial behaviour within the organisation. Transformational leaders who demonstrate intellectual stimulation are more likely to change existing ways of working, identify new problem solving approaches for employees and adapt organisational processes and systems for the future. By giving employees responsibilities and increasing their commitment, such leaders promote innovation and experimentation which is essential for entrepreneurship within the organisation. Research has consistently shown the strong link between transformational leadership and entrepreneurship orientation. For example [17] did a study in Jordanian commercial banks and found that transformational leadership significantly affects entrepreneurship orientation and innovation and growth. [18 ] found that transformational leaders inspire employees by deep intellectual engagement and challenging the status quo – an approach that breeds entrepreneurial spirit. Other studies have also highlighted the role of transformational leadership in creating a culture of entrepreneurship and innovation within organisations. As [40] & [41 ] said transformational leaders create an inspiring vision and a meaningful environment where individuals can think creatively and act boldly. This is echoed by [42 ], [43 ], [44 ] who said transformational leadership is key in creating an organisational climate for innovative thinking and entrepreneurial activities. Moreover transformational leadership goes beyond inspiration – it affects innovation [33], entrepreneurial behaviour [36 ] corporate entrepreneurship[40 ] and product innovation [41 ]. By leveraging transformational leadership organisations can unlock their full potential for innovation excellence and sustainable growth. Based on these findings we propose: H2: Transformational leadership has a positive correlation with entrepreneurial orientation. The Link between Entrepreneurial Orientation and Innovation Entrepreneurial orientation refers to a firm’s predisposition toward the process, policy and decision-making practices that facilitate entering new markets. This is in line with the firm’s desire of maximum utilization of market opportunities under dynamic environment [42 ]. [43 ] argued that entrepreneurial firms are in favour of participating in various innovation activities and initiating radical innovations to develop first-mover advantages and high-risk projects. Indeed, evidence from studies of several different countries and industries suggests that entrepreneurial orientation has a positive impact on innovation performance. For instance, [44 ] found positive relationship between entrepreneurial orientation and innovation performance in a sample of 230 family owned SMEs based in Spain. Similarly, [27 ] finding that entrepreneurial orientation and innovation are positively associated. Moreover, several studies affirm the beneficial relationship between entrepreneurial orientation and product innovation, encompassing both radical and incremental innovations. [45 ] Investigated a sample of 149 manufacturing companies and concluded that entrepreneurial orientation positively affects radical innovations. In the same vein, [46 ], in their study of Greek SMEs on the strategic sources of radical innovations in products, have concluded that entrepreneurial orientation has a positive effect on product innovations. [16 ] corroborated the positive relationship between entrepreneurial orientation and product innovation. Additional studies [47,48 ] also support the assertion of a positive impact of entrepreneurial orientation on both radical and incremental innovations. Based on the aforementioned theoretical and empirical findings, the following hypotheses are proposed: Hypothesis 3a: Entrepreneurial orientation has a positive correlation with exploratory innovation. Hypothesis 3b: Entrepreneurial orientation has a positive correlation with exploitative innovation. Mediating role of Entrepreneurial orientation on the relationship between Transformational leadership and Innovation Different leadership styles can significantly impact a leader's ability to cultivate an entrepreneurial spirit and foster business innovation [49 ]. Prior studies suggest that transformational leaders promote an entrepreneurial orientation within a firm by effectively communicating the value of this orientation to their followers and encouraging entrepreneurship-oriented behaviours among them. Specifically, conveying values associated with entrepreneurial orientation, such as risk-taking, innovativeness, and experimental behaviours, enhances the willingness and ability of organizational members to engage in innovative activities [40 ]. According to [50 ] transformational leadership creates an environment and climate that links entrepreneur ship with the motivation of innovation, creativity, recognising and exploiting entrepreneurial opportunities. Transformational leaders encourage followers to explore new ways for solving problems, to enhance their creativeness and innovation capabilities and competencies prosperity and excellence of the organisation. The connection between entrepreneurial orientation and leadership, particularly transformative leadership, is unmistakable. [51 ] revealed a strong link between entrepreneurial orientation and transformative leadership. According to their findings, transformative leadership promotes organisational entrepreneurship. This increased entrepreneurship is attributed to transformational leadership, which gives people greater freedom in how they carry out their responsibilities. According to [52 ], transformational leaders inspire their followers to think critically and generate fresh ideas and approaches to established practices. Organisations that prioritise innovation and change create an environment that fosters an entrepreneurial mind-set. [17 ] also highlighted the positive relationship between transformational leadership and the implementation of entrepreneurial orientation. Their study demonstrated that transformational leaders, by clearly communicating entrepreneurial values, stimulate entrepreneurship-oriented behaviours among their followers. Another study by [33 ] identified a positive relationship between transformational leadership, entrepreneurial orientation, and innovation. This strongly suggests that entrepreneurship orientation may serve as a mediator in the relationship between innovation and transformational leadership. Therefore, this study aims to investigate the mediating role of entrepreneurship orientation in the relationship between transformational leadership and innovation, proposing the following hypotheses: H4a: Entrepreneurial orientation positively mediates the relationship between transformational leadership and exploratory innovation. H4b: Entrepreneurial orientation positively mediates the relationship between transformational leadership and exploitative innovation. [Insert figure1here] RESEARCH METHOD Research Design To address research problems, researchers must critically appraise the design and methodology of that study [53 ]. This study is descriptive, explanatory in nature; it used cross-sectional design and quantitative method. The main purpose is to analyse the casual relationships between transformational leadership, entrepreneurial orientation, exploratory innovation, and exploitative innovation. 4.2 Population, Study Setting & Sampling Procedure This study examines the key organizational factors affecting exploratory and exploitative innovation within manufacturing firms in Ethiopia. Based on survey reports from the Ethiopian Central Statistical Agency (ECSA), the distribution of large and medium-scale manufacturing industries revealed that there were 3,627 private and government-owned manufacturing firms in the country during the 2016/17 fiscal year. The report categorizes these manufacturing industries into fifteen strata according to the nature of their products and details their spatial distribution across nine regions and two city-states. Among the 3,627 medium and large manufacturers, 39.43% (1,430) are situated in Addis Ababa, followed by Oromia at 25.97% (942) and Amhara at approximately 13.48% (489). The remaining 19% of firms are distributed among the other nine regions and city-states in Ethiopia [54 ]. Addis Abeba, which houses industries from each of the 15 sub-sectors and unlike many other regions, is a center for industrial clustering. In particular, this study is limited to the private and state-owned manufacturing firms in Addis Ababa where these firms have access to skilled labour, technical management and advanced technology of manufacturing process. And, in general, such companies have good manufacturing and marketing capabilities. The choice of medium and large manufacturing firms for this analysis is based on the fact that these companies commit more in research and development (R&D) and innovation than small enterprises do [55 ]. Based on the definition given by [56 ], firms with more than ten employees, but less than fifty one are classified as a medium scale firm while those that have 51 or more employees are categorized as large scale firm. This study specifically targets companies from various industrial categories, including food products and beverages, wearing apparel, tanneries and leather products, textiles, chemical and chemical products, non-metallic mineral products, iron and steel, fabricated metal products, machinery and equipment, as well as assemblers of vehicles and trailers or semi-trailers. In the year 2016/17, there were 1,574 firms in the specified industrial categories nationwide, with 600 manufacturers (38.12%) located in Addis Ababa. With a precision level (sampling error) of e = 0.05, a sample of 240 manufacturing firms was selected for the study from this particular area. The following formula is used in determining the sample size: n = N/1+N (e) 2 Where n = sample size, N = size of population, and e = precision level [57 ]. To determine the exact number of firms to sample from each industrial group, a proportional stratified sampling technique was systematically applied, reflecting the distribution of firms across categories. The purpose of this sampling was to ensure representation of the sample. This process relied on an authoritative list of manufacturers compiled by the Ethiopian Chamber of Commerce and the Ministry of Industry, which facilitated the systematic random sampling of firms for the questionnaire distribution. Data Collection Procedure The data collection procedure for this study employed [58 ] pretesting framework to improve the content validity of the constructs and refine the generated items. As a result, academics and professionals from diverse fields rigorously evaluated and critiqued the survey questions. Furthermore, informal testing of the instruments was conducted with 18 individuals from various higher educational institutions across the nation, specializing in areas such as marketing, business management, and business leadership Based on the insights obtained from the pre-test, a pilot study was executed involving 10 firms, each with 10 participants drawn from the target population. The purpose of this pilot study was to evaluate the relevance of the survey instrument and potential methods for administration. Importantly, review of participant responses showed no need for changes in the survey items. Ethical considerations the researcher observed ethical standards and principles through maintaining impartiality as well upholding the confidentiality of information sourced from respondents. The survey was ultimately conducted with a sample of 240 firms, encompassing three respondents from each organisation: middle level managers who assess construct such entrepreneurship orientation, and innovation, as well as the leadership practices of their supervisors. In total, 720 questionnaires were distributed. Data collection occurred in two distinct phases. In the first phase, information pertaining to market orientation, entrepreneurship orientation, and innovation was collected from January 2024 to May 2024. In the second phase, data concerning the transformational leadership construct was collected between July and August 2024, consequently, the final response rate yielded 624 responses from 208 firms, reflecting an impressive 86.6% response rate. The data collection approach utilized a self-administered survey, whereby the researcher personally delivered the questionnaires to respondents and subsequently retrieved the completed surveys along with other data from collectors. The rationale for employing a self-administered survey includes its capacity to enhance respondent participation [59 ] , provide flexibility and anonymity for participants, eliminate potential interviewer bias, and secure a high response rate among educated respondents [60 ] . Measurement and Instrument This study employs an adapted instrument for the measurement of all relevant constructs. The transformational leadership construct is assessed using the Multifactor Leadership Questionnaire (MLQ) Form 6S, developed by [61 ]. This instrument consists of twelve items, categorized into three sub-constructs: idealized influence (3 items), intellectual stimulation (3 items), individualized consideration (3 items), and inspirational motivation (3 items). The items are rated on a five-point Likert- scale, where 1 indicates "Not at all" and 5 indicates "Frequently, if not always." The entrepreneurship orientation, designated as the mediating variable in this study, is measured by an instrument developed by [43 ] . This instrument comprises 13 items that encapsulate three sub-constructs: innovativeness (5 items), pro-activeness (4 items), and risk-taking (4 items). The measurement of these dimensions has been adapted from the works of [62 ] and [63 ]. The items are rated on a Likert-scale ranging from 1 to 6, wherein a score of 1 signifies strong disagreement and a score of 6 reflects strong agreement. Innovation is examined through two dimensions: exploratory innovation and exploitative innovation. Each dimension is evaluated with a total of 14 questions that have been adapted from [64 ]. Responses were captured on a Likert-scale ranging from 1 to 6, wherein a score of 1 signifies strong disagreement and a score of 6 reflects strong agreement. Data Analysis Methods Data cleaning, exploratory factor analysis (EFA) and preliminary analyses were performed using Statistical Package for Social Sciences (SPSS) software version 22. For the primary analysis of the data, Analysis of Moment Structure (AMOS) version 23 was used. AMOS is a statistical software package that works particularly well for structural equation modelling (SEM) and allows the researcher to add an impressive array of variables simultaneously. It provides the means to build up behaviour and attitude models that will take into account complex dependence relations, allowing for inspection of difficult cause-effect relationships through comfortable interface. This approach allows for an examination of direct and indirect influences among constructs, shedding light on how variables interact. Study Result Hypotheses were tested after demographic information had been collected. Table 1 contains information about the demographic characteristics of the participants like age, sex, education, and work history. Most of the participants, 123of them (59.1%) were males and females participants were only 85, (40.9% )of all participants. With regards to education, 59.1% has a bachelor degree while 20.1% has a master degree. Those who have certificate, diploma and doctorate were in the smallest percentages of the sample, 10%, 8.6%, and 3.3% respectively. 42.3% participants have 2 to 5 years of work experience while 35.5% has 6 to 10 years of work experience. There participants who have less than a year of work experience and those who have been working for over 10 years are 5.7% and 16.3% respectively. In terms of participants, we have 42.7% who are general managers, 31.2% team leaders and 29.5% directors. In terms of organizational characteristics, 65.2% of the participating companies are manufacturing firms with over 200 employees. Furthermore, 24% of the businesses have been operating for ten to twenty years, while 3.3% have been established for over fifty years. [Insert Table 1: Demographic Characteristics] Exploratory Factor Analysis The researchers employed principal component factoring to streamline a total of 39 Likert-scale items into the four necessary variables. Due to their inadequate reliability scores, seven items were excluded from analysis. This comprised one item related to transformational leadership, three items concerning entrepreneurial orientation, two items linked to exploratory innovation, and one item associated with exploitative innovation. In the confirmatory analysis, the remaining 32 items were utilized. For the constructs of transformational leadership, entrepreneurial orientation, and exploratory and exploitative innovation, the Kaiser-Meyer-Olkin(KMO) sampling adequacy values were 0.97, 0.96, 0.91, and 0.94, respectively, all exceeding the threshold of 0.70 (see Table 2). This suggests that there are enough items to effectively predict each variable. Additionally, upon reviewing the KMO and Bartlett’s test results, it was confirmed that the questionnaire data are appropriate for confirmatory factor analysis. Furthermore, before evaluating the structural relationships, collinearity was assessed. The findings reveal that the VIF values for all latent variables are below 3, indicating the absence of multi-collinearity issues [65 ]. [Insert Table 2: Summary of Exploratory Factor Analysis Results] Reliability and Validity We also tested measurement reliability in terms of composite reliability and Cronbach α, reported in Table 3. The minimum was 0.7 these values are above the minimum which approves the reliability [66 ]. Second, the construct validity was evaluated using convergent and discriminant validity measures and consistent with [66 ], factor loading, AVE, and CR. Table 3 also presents factor loadings of 0.84 to 0.96 (all β min 0.6), CR values of 0.94 to 0.97 (all above =0.7), and AVE's from.82 to.86 ( all above= 0.5 ). Consequently, the convergent validity of all measurements was adequate. [Insert Table 3: Standardized loading and reliabilities for the measurement model] Discriminant validity The discriminant validity of the measurement model reflects the extent to which a particular latent construct is distinguished from other constructs [66]. This study used [67] measure of AVE to assess discriminant validity. This approach assesses the discriminant validity of the research instrument by comparing the square root of the AVE with the correlations among the latent variables. Table 4 shows that the square root of AVE for each construct (diagonal elements in bold) is greater than the correlations among constructs in the model. It, therefore, provided strong support for the construct reliability, as well as for the convergent and discriminant validity of the scales. [Insert Table 4: Discriminant validity of the measurement model] Confirmatory factor analysis A confirmatory factor analysis was conducted, which included 32 items and explained four major latent variables. The indicators for model-fit measures taken into consideration to endorse the suitability of structural models were the Minimum Discrepancy Function by Degrees of Freedom divided (CMIN/DF), Standardized Root Mean Squared Residual (SRMR), Comparative Fit Index (CFI), PCLOSE, and Root Mean Square Error of Approximation (RMSEA). According to Hu and Bentler (1999), the acceptable threshold level for CMIN/DF is acceptable fit > 3, excellent fit > 1, the acceptable threshold range for CFI is 0.9, and values greater than 0.95 are considered excellent. Likewise, for SRMR, the acceptable range is between 0 and 0.08; as well as RMSEA, outstanding values should be lower than 1 since its excellent acceptance region is from 0 to 0.05, a value higher than 0.05 and lower than 0.08 is acceptable, and values above 1 are considered poor. Finally, for PCLOSE, acceptable fit 0.05, respectively. As indicated on Table 5 CMIN/DF =1.37 : excellent( acceptable fit>3, excellent fit >1) CFI =0.983: excellent (above than >0.95 is considered good), GFI= 0.844: Acceptable (above than 0.80 is usually acceptable, although some prefer >0.90), AGF I= 0.821: Acceptable ( above than 0.80, ideally above 0.90); TLI = 0.982: Excellent (above 0.95 is good) RMSEA = 0.042: Excellent (below 0.05 indicates a close fit), SRMR=0.032(below 0.05 indicating a close fit). Overall, these indices collectively indicate that the hypothesized model adequately describes the data, and hence, the model fit is justified based on these fit indices. [Insert Table 5: Indices for Model Fit] Structural Model Besides assessing the suitability of the measurement model, the structural component of the specified model is also analysed. The results of the full hypothesized structural model indicate that the structural model is indeed well-fitting. The CFI indicates that the model is well-fitting at 0.983 while the GFI is 0.844, AGFI is 0.821, and TLI is 0.98 which all fall within the Acceptable range while the RMSEA is at 0.042 and SRMR is 0.0349 which indicates that the model is well-fitting. Overall, these indices, of which many are above undisputed thresholds, suggest that the hypothesized model sufficiently describes the data, which are consistent with the model fit indices and hence the justification for the model fit is well established. Direct Effects Analysis The results in Table 6 & Figure 2. Show that the effects of transformational leadership and entrepreneurship orientation on exploratory and exploitative innovation are statistically significant. Therefore, H1, H2 andH3 are supported .Specifically, H1a and H1b proposed positive effects of transformational leadership on exploratory and exploitative innovation, respectively. As shown in Table 6 and Figure 2, the influence of transformational leadership on exploratory and exploitative innovation had values of (β = 0.37, t =5, p < 0.001) and (β =0.32, t = 4.2, p<0.001), respectively. This indicates the positive and significant influence of transformational leadership on both innovation types. However, the effect of transformational leadership on exploratory innovation is greater than the effect on exploitative innovation. Transformational leadership, according to H2, should be positively related to entrepreneurship orientation. This hypothesis is supported by the data (β = 0.46, t= 6.9, p <0.001). The results also revealed that entrepreneurship orientation directly and positively influenced exploratory innovation (β =0.21, t= 2.93, p< 0.05), supporting H3a. However, the influence of entrepreneurship orientation on exploitative innovation was positive but insignificant (β = 0.12, t=1.6, p = 0.104), hence H3b was not supported. [Insert Figure 2: Path coefficients of the structural model] [Insert Table6; Standardized path coefficients] Mediation Analysis H4 proposed that entrepreneurial orientation is a mediator between transformational leadership and both exploratory (H4a) and exploitative innovation (H4b). Looking at the relationship between entrepreneurial orientation and transformational leadership and exploratory innovation, the results showed that entrepreneurial orientation has a significant impact (β = 0.131, t = 2.3, p < 0.05) on this relationship, so H4a is supported. The results showed that transformational leadership has no significant effect on exploitative innovation through entrepreneurial orientation (β = 0.074, t = 1.45, p = 0.119) so H4b is not supported [Insert Table 7; Results of mediation Analysis] Discussion Research demonstrates that transformational leaders play a critical role in fostering innovation; however, their impact on both exploratory and exploitative innovations remains unclear. This study seeks to clarify how transformational leadership encourages different types of innovation by investigating the mediating effect of entrepreneurial orientation. The results indicate that transformational leadership has a positive and significant direct influence on both exploratory and exploitative innovation. This supports prior studies that emphasize the significance of transformational leaders in encouraging exploratory innovations [ 68 ] and also in significantly facilitating exploitative innovations [ 30 ]. Transformational leaders can boost their followers' enthusiasm for both experimental and exploitative innovation by cultivating an environment conducive to innovation, risk-taking, and collaboration. Moreover, transformational leaders motivate their followers to develop self-confidence, which allows them to surpass their limits, which promotes exploitative innovations but is especially vital for exploratory innovations [39,69 ]. The second, finding from this study is that transformational leadership and entrepreneurial orientation are strongly related. This study found a positive and significant association between transformational leadership and entrepreneurship orientation (regression weight = 0.46, p < 0.001). This study's findings are consistent with previous research indicating that transformational leadership has a beneficial impact on entrepreneurial orientation [17,18,70 ]. Furthermore, transformational leadership fosters an environment conducive to entrepreneurship and innovation within organisations [71 ,72,73 ] which has a substantial impact on the innovation process [33 ]. Our discovery that transformational leadership at the top management level has a direct impact on innovation types supports the central tenet of upper echelon theory, implying that strategic decisions (whether to pursue exploratory or exploitative innovation) reflect the upper echelon's leadership values and behaviours." Furthermore, entrepreneurship orientation as an organisational element mirrors top management behaviours. Third, this research offers compelling evidence that entrepreneurial orientation has a positive influences exploratory innovation, regardless of how small the impact on exploitative innovation. The given discovery conforms to the overall body of literature on entrepreneurial orientation and innovation, which is always unanimous about the significance of an entrepreneurial mind-set in propelling firms to seek new opportunities and devise new solutions [62,43 ]. It has been established in the past that the entrepreneurial orientation is positively related to radical innovation [27,45,46 ]. A research conducted by [15 ] also highlights the innovative attitudes that are generated by the proactive and innovative orientations of the entrepreneurial orientations that lead to the generation of new ideas that can be used to solve unarticulated needs, hence increasing radical innovation. However, this research found no significant influence on exploitative innovations, which contradicts findings that suggest it enables both types of innovations [74 ]. In this research entrepreneurship orientation exerts a more significant influence on exploratory innovation compared to exploitative innovation. This can be comprehended through its three dimensions: Pro-activeness, innovativeness and risk taking. One of the characteristics of entrepreneurial orientation is pro-activeness, which is described as a visionary approach to the market [75 ]. When they have an active mind-set, the firm is more likely to be innovative and can take opportunities of exploratory innovation [33 ] through environmental scanning; proactive firms are better placed to exploit potential opportunities in the undeserved regions as they will be able to explore them independently through the provision of exploratory innovations, which competitors might be unable to do. Moreover, proactive firms are willing to create new markets by encouraging consumers to develop new needs [ 76 ]. As a result, these organizations are better positioned to introduce new technologies, further fostering exploratory innovation [48 ] . Innovativeness, as a dimension of entrepreneurial orientation, encourages firms to renew their existing practices and explore new domains [77 ], creating a predisposition for radical innovation. It is argued that firms with high levels of innovativeness are more willing to deviate from established practices and engage in exploratory experiments [78 ], which can lead to radical innovations. Furthermore, innovative firms tend to attract more creative employees [79 ], which enhances overall organizational creativity [80 ]. This may result in innovative firms developing a broader and deeper knowledge base that supports exploratory innovation. Risk-taking involves a disposition to plunge resources into undertakings that have high chances of failure [ 81 ]. As the process of exploratory innovation is associated with certain risks, employers will only go into it when they are ready to accept a chance of failure. Therefore, proactive organizations show higher ability to adopt new technologies, which makes them highly covered to explore innovation. On the other hand, the companies risk-averse to risk might turn out to be less reluctant to be pursuing radical innovation. Moreover, the fact that the entrepreneurial orientation does not directly correlate with the exploitative innovation in the framework of this study can be explained by the fact that the focus on the exploitative innovation and its dependence on the managerial competencies and resource coordination is not sufficiently emphasized. For instance, a company exhibiting a robust entrepreneurial orientation might under allocate resources towards refinement, efficiency enhancements, and incremental process improvements due to a deficiency in exploitative management capability or deliberate choice to direct its resources towards exploratory innovation instead of exploitative innovation. Fourth, the issue of entrepreneurial orientation as a mediator in the relationship between transformational leadership and innovation is a crucial point that is examined in the study. These findings suggest that entrepreneurial orientation acts as a mediator between transformational leadership and exploratory innovation meaning that transformational leaders emphasize the promotion of entrepreneurial orientation to facilitate exploratory innovation. The above finding is in line with other studies that have found that entrepreneurial orientation mediates the relationship between transformational leadership and exploratory innovation. Earlier studies have identified that entrepreneurial orientation mediates the link between transformational leadership and radical innovation [33 ]. Nevertheless, this study found that entrepreneurial orientation does not significantly mediate the relationship between transformational leadership and exploitative innovation. This conclusion supports the assertions made by [33 ], showing that entrepreneurial orientation does not act as a meaningful mediator in the dynamics between transformational leadership and exploitative innovation. A key factor contributing to this result is the considerable authority of founders in large and medium-sized manufacturing companies in Ethiopia. These founders make essential decisions that influence the company’s daily activities, which grant a substantial level of managerial control. This degree of flexibility in control produces an entrepreneurial-friendly environment that eventually bolsters radical innovation [ 82 ]. More so, it is imperative to recognize the fact that there may be other strategic orientations that could be playing a very critical mediating role between the transformational leadership and exploitative innovation. [33 ] provided strong evidence of a significant mediating effect of market orientation in this context. Conclusion The primary objective of the study was to explore whether entrepreneurial orientation plays a mediating role between transformational leadership and innovation. Moreover, the study examined the direct impact of transformational leadership on two aspects of innovation, and the influence of entrepreneurial orientation in the exploratory and exploitative innovation. The findings revealed mixed results. Three of the proposed hypotheses were validated, whereas two were dismissed. Specifically, the study has identified the positive impact of transformational leadership on both exploratory and exploitative innovation. It also found the indirect impact of transformational leadership on the exploratory innovation through the mediation of entrepreneurship orientation. However, the expected high direct impact of entrepreneurship orientation on exploitative innovation and the mediating role of the same in the relationship between transformational leadership and exploitative innovation could not be affirmed. The study concludes that entrepreneurship orientation is not a mediator in the relationship between transformational leadership and exploitative innovation. Instead, it suggests a partial mediation of entrepreneurial orientation in the association between transformational leadership and exploratory innovation. These findings imply that subsequent studies should investigate the mediating influence of alternative strategic orientations, including market orientation and learning orientation Theoretical Contribution This study adds to the innovation literature in two significant ways. First, by building on upper echelon theory and incorporating ideas from resource-based theory, the current study expands on previous research by identifying the mechanism through which transformational leaders encourage exploratory and exploitative innovation. Based on the results of the study, transformational leaders could encourage both exploratory and exploitative innovation through the focus on entrepreneurial orientation. In this way, the current research is useful to upper-level researches as it clarifies the role of transformational leaders in promoting exploratory and exploitative innovation, providing a theoretical identification of the role of entrepreneurship orientation and empirical confirmation of the mediation process. Earlier research has already started to analyse how transformational leadership affects innovation indirectly by facilitating knowledge exchange [10 ]. The results of this research suggest that further studies are required to investigate the complexity of the relationship between transformational leadership and exploratory and exploitative innovation to contribute further information to scholars and practitioners. Second, the resource-based theory is of the view that competitive advantage is generated by the internal resources and competencies of an organization. The findings of the study confirm this perspective of the issue because they contain empirical information about the effect of entrepreneurship orientation on different forms of innovation. Consequently, the results are used to contribute to the development of RBT in the area of innovation research. Managerial and Policy Implications This study carries significant implications for managers, decision-makers, and policymakers. First, empirical studies indicate that transformational leadership is important in promoting both the exploratory and exploitative innovation. It means that companies ought to be focused on development and existence of transformational leaders. One of the benefits that Ethiopian manufacturing companies can get is to promote transformational leadership that favours entrepreneurship, strategic thinking, motivation, and empowerment. To decision-makers and policymakers, the results indicate that transformational leadership should be encouraged to enhance innovation in medium and large-sized manufacturing firms. The policy-makers can contribute to this by providing leadership training, financial rewards to innovate and create networks promoting exploration as well as refinement. These companies can also be helped through consulting firms which offer leadership development programs, mentorship and practical training utilizing transformational leadership. Secondly, given the different nature of exploratory and exploitative innovations, transformational leaders should consider the fit of the strategic orientation with the requirements of the type of innovation pursued to prevent costly and resource-intensive investments in ineffective orientations. For instance, the result of this study shows that top managers seeking radical innovation should stimulate an entrepreneurial orientation. Conversely, the results indicate that transformational leaders might fail to encourage the exploitative innovations using an entrepreneurial orientation as it does not affect exploitative innovation directly. Therefore, transformational leaders ought to consider other strategy orientations that can more readily support the exploitative innovation like the market orientation or the learning orientation. Also, the results suggest that practices related to transformational leadership are critical in facilitating activities related to entrepreneurial orientation, which subsequently boost the innovation capabilities. Transformational leaders cultivate an entrepreneurial orientation by advocating values like innovativeness, risk-taking, and proactivity, which are subsequently adopted by their followers [42 ]. By effectively communicating these values and the expected behaviours’, leaders enable followers to understand the desired objectives. This clarity enhances their willingness to experiment, engage in creative thinking, and adopt risk-taking behaviours [40 ]. Consequently, this study recommends that directors and managers of Ethiopian manufacturing firms should concentrate on identifying effective strategic orientation including market orientation, resource orientation, learning orientation as well as strategies such as operational excellence and knowledge sharing along with appropriate methods to cultivate an environment that encourage employees to actively and positively engage in entrepreneurial orientation activities ,ultimately leading to exploitative innovation. Additionally, fostering transformational behaviours in lower-level leaders is crucial, as they play a key role in guiding and impacting the operational activities needed to execute strategic initiatives and promote innovation. Research Limitations and Suggestions for Future research The research has evident limitations that subsequent researchers need to consider. Firstly, since the data was collected solely from large and medium manufacturing companies in Ethiopia, the ability to generalize the results is naturally limited. The findings are primarily applicable to large manufacturing organisations in major urban regions of developing economies, but they may not apply to rural firms or those in other sectors/countries. To create solid comparisons between the industrial and service industries, future research should include data from rural enterprises and other contexts, such as the service sector. Second, this study does not encompass all factors that influence exploratory and exploitative innovation. Future investigations should expand the existing theoretical framework by incorporating additional mediating or moderating variables into the analysis. For example, researchers should explore the mediating effects of customer orientation and learning orientation on the relationship between transformational leadership and innovation. Furthermore, conducting a comparative analysis on how different leadership styles influence various aspects of innovation in both the manufacturing and service sectors is essential. Finally, the study used a cross-sectional design to investigate the correlations among the constructs and was unable to assess potential changes in causal relationships in the long term. A longitudinal study would overcome this limitation and consolidate the results. Abbreviations AGFI Adjusted goodness-of-fit index CFI Comparative fit index AVE Average variance explained CMIN/DF) Chi-square statistics to the degree of freedom CR Composite reliability Cr Critical ratio EO Entrepreneurship orientation GDP Gross Domestic Product GFI:Goodness-of-fit index KMO Kaiser–Meyer Olkin NNFI Non-normed fit index NFI Normed fit index RBT Resource-based-Theory RMSEA Root-mean-square error of approximation SMC Squared multiple correlation Sig Significance level SWR Standardized regression weight TLI Tucker–Lewis index TL Transformational leadership Declarations Compliance with Ethical Standards Disclosure of potential conflicts of interest All authors certify that they have no affiliations with or involvement in any organization or entity with any financial interest or non-financial interest in the subject matter or materials discussed in this manuscript. Research involving Human Participants and/or Animals This study was carried out in complete adherence to the ethical standards established by the pertinent institutional and/or national ethics committees, following the 1964 Helsinki Declaration and its subsequent modifications or comparable ethical guidelines. The Institutional Research Ethics Committee has approved this study. Written approval has been obtained from the committee for conducting the research. Informed consent Informed consent was acquired from every individual participant engaged in the research, and they were made aware of the study’s objectives, their rights, voluntary involvement, and any potential risks or discomforts. Data were anonymized prior to analysis in order to maintain participant confidentiality. All procedures involving human subjects complied with relevant ethical regulations and guidelines. Funding The research did not receive specific grants from funding agencies, but researchers maintained complete independence in designing and executing the project. Consent for publication All authors have agreed to publish the manuscript. References Lei H, Leaungkhamma L, Le P B (2020) How transformational leadership facilitates innovation capability: the mediating role of employees’ psychological capital. Leadersh Orgn Dev J 41(4) 481–499. https://doi.org/10.1108/lODJ-06-2019-0245 Villaluz V, Hechanova, M (2019) "Ownership and leadership in building an innovation culture", Leadersh Organ Dev J 40(2)138-150. https://doi.org/10.1108/LODJ-05-2018-0184 Lathong L, Phong BL , Saeheng P (2021) Transformational leadership, knowledge sharing and innovation capability: An empirical study from Lao firms. Int Bus Manag J4(9), 01–10. https://doi.org/10.37227/ jibm-2021-08-1154 Jia X, Chen J, Mei L, Wu Q (2018) How leadership matters in organizational innovation: A perspective of openness. 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2","display":"","copyAsset":false,"role":"figure","size":36616,"visible":true,"origin":"","legend":"\u003cp\u003eSee image above for figure legend.\u003c/p\u003e","description":"","filename":"FigureTwoStracturalmodel.jpg","url":"https://assets-eu.researchsquare.com/files/rs-7826827/v1/23407a47c797a493565eaeda.jpg"},{"id":109132337,"identity":"8ac4e42b-6f09-49ce-9330-6285b4ef9c0e","added_by":"auto","created_at":"2026-05-12 21:54:41","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":375594,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7826827/v1/397841a4-0fd6-49ff-a6d4-8a2d9423afaa.pdf"},{"id":95228302,"identity":"45eeda6d-17e5-4f99-8962-d351e2c0145a","added_by":"auto","created_at":"2025-11-05 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Innovation capability, which involves developing and implementing new ideas or practices related to products, services, process and programmes [3,4 ]is widely recognised as a key dynamic competence driving organizational success and adaptability [5, 6,]. As a result, organisations are increasingly focussing on strengthening their innovation capabilities to overcome external turbulences that could have significant impact on their performance [7].\u003c/p\u003e\n\u003cp\u003eInnovation has been found to be important for organizational performance and survival in volatile conditions [8 ], critical for gaining and sustaining competitive advantage [9 ], and allowing organizations to respond to new market conditions and demands [10 ]. Yet, many small to medium-sized firms in emerging and developing countries lack the resources and capital to innovate and tend to become imitators rather than innovators [9 ]. In light of these challenges, both researchers and practitioners are increasingly dedicating their efforts to identifying the antecedents, innovative mechanisms, and optimal solutions necessary to enhance the innovation capabilities of firms operating in these nations [11 ]. \u003c/p\u003e\n\u003cp\u003eA growing body of research indicates that one of the main forces behind innovation is transformational leadership. A supportive environment for developing employee skills and encouraging creative practices is largely dependent on transformational leadership [12 ]. Employees in organizations are known to be inspired to adopt positive attitudes and behaviours by it [13 ]. According to research, transformational leadership fosters innovation more than other leadership philosophies [14 ]. The precise ways in which this leadership style influences various forms of innovation, such as exploitative and exploratory innovation, have not yet been thoroughly investigated. It's still unclear whether transformational leadership has a direct effect on these innovations or if other organizational factors act as a mediating factor.\u003c/p\u003e\n\u003cp\u003eIn a similar vein, one important organizational component that affects innovation is entrepreneurial orientation. Creative ideas, which are essential for introducing new products, adjusting to a constantly shifting environment, conquering innovation obstacles, increasing innovation efficiency, and foreseeing innovation needs, can be found in an entrepreneurial mind-set. Previous research has reported that there is a positive relationship between entrepreneurial orientation and innovation [15, 16]. Moreover, the previous studies found that transformational leadership has a considerable influence on entrepreneurial orientation [17, 18]. Although the relationships have been well established between innovation, entrepreneurial orientation and transformational leadership, past research has not exhaustively investigated this within one model. Moreover, most of the studies that have been conducted on innovation and leadership within the manufacturing industry have been done on the economies of developed nations. Nevertheless, minimal research has been conducted regarding the manufacturing sector in such countries as Ethiopia that is rapidly becoming more important. This sector plays an important role in Ethiopian economy and plays a critical role in ensuring that the GDP increases and jobs are created. But various reports and studies indicate that Ethiopian manufacturers are deficient in managerial and technical expertise, and this fact leads to less innovative practices in the industry.\u003c/p\u003e\n\u003cp\u003eAlthough there is a little empirical research on the variables that influence the innovation performance of Ethiopian manufacturing companies the study by [19 ] touched up some relevant issues. According to its research, the most important problems faced manufacturing companies are shortage of skilled labour, high cost of innovation, a culture of innovation, and a perception economic risk. More research is needed necessary to fully understand the complexities involved. This makes the role of leadership and its implication for manufacturing companies an important issue which has so far received little attention or study in the literature [20], and that is also the case in Ethiopia. Consequently, the purpose of this study was to look into the role of entrepreneurship orientation in mediating the relationship between transformational leadership and innovation; therefore, the study addresses the following two research questions: (a) how does transformational leadership influence exploratory and exploitative innovation in Ethiopian manufacturing firms? And (b) how does entrepreneurial orientation influence the relationship between transformational leadership and innovation?\u003c/p\u003e\n\u003cp\u003eTo better understand the relationships among transformational leadership, entrepreneurial orientation, and innovation, our examination primarily relies on Resource-based Theory (RBT) and Upper Echelon Theory. The Resource-Based View suggests that organizations can achieve a sustainable competitive edge over rivals by effectively leveraging their unique skills and capabilities [21 ]. This concept assumes that the resources of a company include both tangible and intangible assets used to design and implement strategies to increase efficiency and effectiveness. On the contrary, the upper-level theory of leadership argues that organizational outcomes, including strategy and efficiency, reflect the values and cognitive frameworks of senior managers [22].\u003c/p\u003e\n\u003cp\u003eResearchers believe their study will provide important insights for both theoretical understanding and practical application. Firstly, this research advances the field of innovation by presenting a detailed model that connects transformational leadership to entrepreneurial orientation and innovation. Secondly, the findings of this research will encourage transformational leaders in Ethiopian manufacturing companies to prioritize entrepreneurial orientation as a vital component for promoting exploratory innovation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eTheoretical Foundation\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThis research framework strongly based on Upper Echelon and Resource-Based Theory (RBT). According to Upper Echelon Theory, the values, personality and experience of the leader have a significant impact on the action of the leader. This theory emphasises how backgrounds and characteristics of top management strongly influence organizational performance, strategic decision, and overall performance of the company. These elements are essential to the design of strategies that work and achievement of excellent results [22]. In addition top managers play a key role in setting organizational policies, making strategic decisions, and guiding organisations. Their actions have the potential to revolutionize the company and have a positive effect on employee dynamics [23 ]. Top managers are therefore essential drivers of a company's activities and exceptional performance [22,24 ]\u003c/p\u003e\n\u003cp\u003eThe Resource-Based Theory (RBT), developed by [25], serves as another fundamental pillar this investigation. According to RBT, companies can gain a permanent competitive advantage over their competitors by making strategic use of their unique skills and talents [21 ]. This theory holds that organizational resources include both tangible and intangible assets that companies use to design and implement strategies that aim at maximizing efficiency and effectiveness [25 ]. However, intangible resources hold the key to a long-term competitive advantage because they are significantly more difficult to define and replicate [26]. According to [27 ] entrepreneurship orientation is a strategic resource for firms because it \"reflects the firm's philosophy of how to conduct business through a deeply rooted set of values and beliefs that guides the firm's attempt to achieve superior performance\". As a result, in this study, entrepreneurial orientation is considered as organisations' strategic resources for improved innovation performance [28 ].\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Transformational leadership and Innovation\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eLeadership is widely recognized as a crucial factor influencing innovation. Leaders impact various organizational characteristics such as culture, strategy, structure, reward systems, and resource allocation [29 ]. In addition, they play a key role in inspiring creativity in their followers [30 ]. Research on innovation shows that each leadership style has a significant impact on different aspects of innovation capacity [1 ]. Among these styles, transformational leadership is recognized as one of the most effective in promoting the capacity of innovation within organizations [9,31 ]. Transformational leaders promote intellectual stimulation, encouraging individuals to think outside the box, perspective-shift on problems, and engage in generative and exploratory thinking processes [32] When individuals are inspired to re-think and know that their ideas are appreciated by their leaders, they are more likely to come up with innovative ideas that foster both exploitative and exploratory innovations[33 ] .\u003c/p\u003e\n\u003cp\u003eTransformational leaders who demonstrate an idealized impact can build trust and respect in their work force. They express confidence in the organisation's vision, inspire admiration and commitment, share risk with their followers and highlight the importance of a shared understanding of the mission of the organisation [34] . Employees who identify with a common sense of purpose rather than acting in their own interests will provide the necessary cognitive support for innovation activities [35 ] . It is evident from empirical research that transformational leadership has a major positive influence on different forms of innovation [ 14 ,4 9 ] . According to [36 ] transformational leadership successfully promotes experimentation and open communication, both of which are essential for improving innovation capabilities. Transformational leadership directly influences a firm's innovation capacity by improving learning processes [37 ] and significantly impacts organizational innovation performance through innovation openness [4 ]. Furthermore, transformational leaders establish a positive culture for knowledge sharing, which distinctly boosts innovation [9 ] . The literature does, however, show a significant disparity in how transformational leadership and both exploitative and exploratory innovation are related. .Some studies argue that transformational leaders prioritize radical innovations over efficiency or incremental improvements [38 ], while others assert that they excel in facilitating efficiency and incremental changes [39 ]. Thus, it is evident that the relationship between transformational leadership and innovation needs further investigation. Therefore, we propose the following hypothesis:\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e Hypothesis 1a: Transformational leadership has a positive correlation with exploratory innovation.\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e Hypothesis 1b: Transformational leadership has a positive correlation with exploitative innovation.\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e The link between Transformational leadership and Entrepreneurial Orientation \u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eTransformational leadership is a key to developing and succeeding in entrepreneurship orientation [18]. Transformational leaders encourage employees to think outside the box, generate innovative ideas about existing practices and products and to change. This in turn enhances their entrepreneurial mind-sets and encourages entrepreneurial behaviour within the organisation. Transformational leaders who demonstrate intellectual stimulation are more likely to change existing ways of working, identify new problem solving approaches for employees and adapt organisational processes and systems for the future. By giving employees responsibilities and increasing their commitment, such leaders promote innovation and experimentation which is essential for entrepreneurship within the organisation. \u003c/p\u003e\n\u003cp\u003eResearch has consistently shown the strong link between transformational leadership and entrepreneurship orientation. For example [17] did a study in Jordanian commercial banks and found that transformational leadership significantly affects entrepreneurship orientation and innovation and growth. [18 ] found that transformational leaders inspire employees by deep intellectual engagement and challenging the status quo – an approach that breeds entrepreneurial spirit. Other studies have also highlighted the role of transformational leadership in creating a culture of entrepreneurship and innovation within organisations. As [40] \u0026amp; [41 ] said transformational leaders create an inspiring vision and a meaningful environment where individuals can think creatively and act boldly. This is echoed by [42 ], [43 ], [44 ] who said transformational leadership is key in creating an organisational climate for innovative thinking and entrepreneurial activities. Moreover transformational leadership goes beyond inspiration – it affects innovation [33], entrepreneurial behaviour [36 ] corporate entrepreneurship[40 ] and product innovation [41 ]. By leveraging transformational leadership organisations can unlock their full potential for innovation excellence and sustainable growth. Based on these findings we propose:\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH2: Transformational leadership has a positive correlation with entrepreneurial orientation.\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e The Link between Entrepreneurial Orientation and Innovation\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eEntrepreneurial orientation refers to a firm’s predisposition toward the process, policy and decision-making practices that facilitate entering new markets. This is in line with the firm’s desire of maximum utilization of market opportunities under dynamic environment [42 ]. [43 ] argued that entrepreneurial firms are in favour of participating in various innovation activities and initiating radical innovations to develop first-mover advantages and high-risk projects. Indeed, evidence from studies of several different countries and industries suggests that entrepreneurial orientation has a positive impact on innovation performance. For instance, [44 ] found positive relationship between entrepreneurial orientation and innovation performance in a sample of 230 family owned SMEs based in Spain. Similarly, [27 ] finding that entrepreneurial orientation and innovation are positively associated. Moreover, several studies affirm the beneficial relationship between entrepreneurial orientation and product innovation, encompassing both radical and incremental innovations. [45 ] Investigated a sample of 149 manufacturing companies and concluded that entrepreneurial orientation positively affects radical innovations. In the same vein, [46 ], in their study of Greek SMEs on the strategic sources of radical innovations in products, have concluded that entrepreneurial orientation has a positive effect on product innovations. [16 ] corroborated the positive relationship between entrepreneurial orientation and product innovation. Additional studies [47,48 ] also support the assertion of a positive impact of entrepreneurial orientation on both radical and incremental innovations. Based on the aforementioned theoretical and empirical findings, the following hypotheses are proposed:\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eHypothesis 3a: Entrepreneurial orientation has a positive correlation with exploratory innovation.\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eHypothesis 3b: Entrepreneurial orientation has a positive correlation with exploitative innovation.\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eMediating role of Entrepreneurial orientation on the relationship between Transformational leadership and Innovation\u003c/strong\u003e \u003c/p\u003e\n\u003cp\u003eDifferent leadership styles can significantly impact a leader's ability to cultivate an entrepreneurial spirit and foster business innovation [49 ]. Prior studies suggest that transformational leaders promote an entrepreneurial orientation within a firm by effectively communicating the value of this orientation to their followers and encouraging entrepreneurship-oriented behaviours among them. Specifically, conveying values associated with entrepreneurial orientation, such as risk-taking, innovativeness, and experimental behaviours, enhances the willingness and ability of organizational members to engage in innovative activities [40 ]. According to [50 ] transformational leadership creates an environment and climate that links entrepreneur ship with the motivation of innovation, creativity, recognising and exploiting entrepreneurial opportunities. Transformational leaders encourage followers to explore new ways for solving problems, to enhance their creativeness and innovation capabilities and competencies prosperity and excellence of the organisation. The connection between entrepreneurial orientation and leadership, particularly transformative leadership, is unmistakable.\u003c/p\u003e\n\u003cp\u003e[51 ] revealed a strong link between entrepreneurial orientation and transformative leadership. According to their findings, transformative leadership promotes organisational entrepreneurship. This increased entrepreneurship is attributed to transformational leadership, which gives people greater freedom in how they carry out their responsibilities. According to [52 ], transformational leaders inspire their followers to think critically and generate fresh ideas and approaches to established practices. Organisations that prioritise innovation and change create an environment that fosters an entrepreneurial mind-set. [17 ] also highlighted the positive relationship between transformational leadership and the implementation of entrepreneurial orientation. Their study demonstrated that transformational leaders, by clearly communicating entrepreneurial values, stimulate entrepreneurship-oriented behaviours among their followers. Another study by [33 ] identified a positive relationship between transformational leadership, entrepreneurial orientation, and innovation. This strongly suggests that entrepreneurship orientation may serve as a mediator in the relationship between innovation and transformational leadership. Therefore, this study aims to investigate the mediating role of entrepreneurship orientation in the relationship between transformational leadership and innovation, proposing the following hypotheses:\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH4a: Entrepreneurial orientation positively mediates the relationship between transformational leadership and exploratory innovation.\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH4b:\u003c/em\u003e\u003c/strong\u003e\u003cem\u003e \u003cstrong\u003eEntrepreneurial orientation positively mediates the relationship between transformational leadership and exploitative innovation.\u003c/strong\u003e\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u003cem\u003e[Insert figure1here]\u003c/em\u003e\u003c/p\u003e"},{"header":"RESEARCH METHOD","content":"\u003cp\u003e\u003cstrong\u003e Research Design\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eTo address research problems, researchers must critically appraise the design and methodology of that study [53 ]. This study is descriptive, explanatory in nature; it used cross-sectional design and quantitative method. The main purpose is to analyse the casual relationships between transformational leadership, entrepreneurial orientation, exploratory innovation, and exploitative innovation.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e 4.2 Population, Study Setting \u0026amp; Sampling Procedure\u003c/strong\u003e \u003c/p\u003e\n\u003cp\u003eThis study examines the key organizational factors affecting exploratory and exploitative innovation within manufacturing firms in Ethiopia. Based on survey reports from the Ethiopian Central Statistical Agency (ECSA), the distribution of large and medium-scale manufacturing industries revealed that there were 3,627 private and government-owned manufacturing firms in the country during the 2016/17 fiscal year. The report categorizes these manufacturing industries into fifteen strata according to the nature of their products and details their spatial distribution across nine regions and two city-states. Among the 3,627 medium and large manufacturers, 39.43% (1,430) are situated in Addis Ababa, followed by Oromia at 25.97% (942) and Amhara at approximately 13.48% (489). The remaining 19% of firms are distributed among the other nine regions and city-states in Ethiopia [54 ]. Addis Abeba, which houses industries from each of the 15 sub-sectors and unlike many other regions, is a center for industrial clustering. In particular, this study is limited to the private and state-owned manufacturing firms in Addis Ababa where these firms have access to skilled labour, technical management and advanced technology of manufacturing process. And, in general, such companies have good manufacturing and marketing capabilities. The choice of medium and large manufacturing firms for this analysis is based on the fact that these companies commit more in research and development (R\u0026amp;D) and innovation than small enterprises do [55 ]. Based on the definition given by [56 ], firms with more than ten employees, but less than fifty one are classified as a medium scale firm while those that have 51 or more employees are categorized as large scale firm.\u003c/p\u003e\n\u003cp\u003eThis study specifically targets companies from various industrial categories, including food products and beverages, wearing apparel, tanneries and leather products, textiles, chemical and chemical products, non-metallic mineral products, iron and steel, fabricated metal products, machinery and equipment, as well as assemblers of vehicles and trailers or semi-trailers.\u003c/p\u003e\n\u003cp\u003eIn the year 2016/17, there were 1,574 firms in the specified industrial categories nationwide, with 600 manufacturers (38.12%) located in Addis Ababa. With a precision level (sampling error) of e = 0.05, a sample of 240 manufacturing firms was selected for the study from this particular area. The following formula is used in determining the sample size:\u003c/p\u003e\n\u003cp\u003en = N/1+N (e) 2\u003c/p\u003e\n\u003cp\u003eWhere n = sample size, N = size of population, and e = precision level [57 ].\u003c/p\u003e\n\u003cp\u003eTo determine the exact number of firms to sample from each industrial group, a proportional stratified sampling technique was systematically applied, reflecting the distribution of firms across categories. The purpose of this sampling was to ensure representation of the sample. This process relied on an authoritative list of manufacturers compiled by the Ethiopian Chamber of Commerce and the Ministry of Industry, which facilitated the systematic random sampling of firms for the questionnaire distribution.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Data Collection Procedure\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe data collection procedure for this study employed [58 ] pretesting framework to improve the content validity of the constructs and refine the generated items. As a result, academics and professionals from diverse fields rigorously evaluated and critiqued the survey questions. Furthermore, informal testing of the instruments was conducted with 18 individuals from various higher educational institutions across the nation, specializing in areas such as marketing, business management, and business leadership\u003c/p\u003e\n\u003cp\u003eBased on the insights obtained from the pre-test, a pilot study was executed involving 10 firms, each with 10 participants drawn from the target population. The purpose of this pilot study was to evaluate the relevance of the survey instrument and potential methods for administration. Importantly, review of participant responses showed no need for changes in the survey items. Ethical considerations the researcher observed ethical standards and principles through maintaining impartiality as well upholding the confidentiality of information sourced from respondents.\u003c/p\u003e\n\u003cp\u003eThe survey was ultimately conducted with a sample of 240 firms, encompassing three respondents from each organisation: middle level managers who assess construct such entrepreneurship orientation, and innovation, as well as the leadership practices of their supervisors. In total, 720 questionnaires were distributed. Data collection occurred in two distinct phases. In the first phase, information pertaining to market orientation, entrepreneurship orientation, and innovation was collected from January 2024 to May 2024. In the second phase, data concerning the transformational leadership construct was collected between July and August 2024, consequently, the final response rate yielded 624 responses from 208 firms, reflecting an impressive 86.6% response rate.\u003c/p\u003e\n\u003cp\u003eThe data collection approach utilized a self-administered survey, whereby the researcher personally delivered the questionnaires to respondents and subsequently retrieved the completed surveys along with other data from collectors. The rationale for employing a self-administered survey includes its capacity to enhance respondent participation [59 ] , provide flexibility and anonymity for participants, eliminate potential interviewer bias, and secure a high response rate among educated respondents [60 ] .\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Measurement and Instrument \u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThis study employs an adapted instrument for the measurement of all relevant constructs. The transformational leadership construct is assessed using the Multifactor Leadership Questionnaire (MLQ) Form 6S, developed by [61 ]. This instrument consists of twelve items, categorized into three sub-constructs: idealized influence (3 items), intellectual stimulation (3 items), individualized consideration (3 items), and inspirational motivation (3 items). The items are rated on a five-point Likert- scale, where 1 indicates \"Not at all\" and 5 indicates \"Frequently, if not always.\"\u003c/p\u003e\n\u003cp\u003eThe entrepreneurship orientation, designated as the mediating variable in this study, is measured by an instrument developed by [43 ] . This instrument comprises 13 items that encapsulate three sub-constructs: innovativeness (5 items), pro-activeness (4 items), and risk-taking (4 items). The measurement of these dimensions has been adapted from the works of [62 ] and [63 ]. The items are rated on a Likert-scale ranging from 1 to 6, wherein a score of 1 signifies strong disagreement and a score of 6 reflects strong agreement.\u003c/p\u003e\n\u003cp\u003eInnovation is examined through two dimensions: exploratory innovation and exploitative innovation. Each dimension is evaluated with a total of 14 questions that have been adapted from [64 ]. Responses were captured on a Likert-scale ranging from 1 to 6, wherein a score of 1 signifies strong disagreement and a score of 6 reflects strong agreement.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Data Analysis Methods\u003c/strong\u003e \u003c/p\u003e\n\u003cp\u003eData cleaning, exploratory factor analysis (EFA) and preliminary analyses were performed using Statistical Package for Social Sciences (SPSS) software version 22. For the primary analysis of the data, Analysis of Moment Structure (AMOS) version 23 was used. AMOS is a statistical software package that works particularly well for structural equation modelling (SEM) and allows the researcher to add an impressive array of variables simultaneously. It provides the means to build up behaviour and attitude models that will take into account complex dependence relations, allowing for inspection of difficult cause-effect relationships through comfortable interface. This approach allows for an examination of direct and indirect influences among constructs, shedding light on how variables interact.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Study Result\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eHypotheses were tested after demographic information had been collected. Table 1 contains information about the demographic characteristics of the participants like age, sex, education, and work history. Most of the participants, 123of them (59.1%) were males and females participants were only 85, (40.9% )of all participants. With regards to education, 59.1% has a bachelor degree while 20.1% has a master degree. Those who have certificate, diploma and doctorate were in the smallest percentages of the sample, 10%, 8.6%, and 3.3% respectively. 42.3% participants have 2 to 5 years of work experience while 35.5% has 6 to 10 years of work experience. There participants who have less than a year of work experience and those who have been working for over 10 years are 5.7% and 16.3% respectively. In terms of participants, we have 42.7% who are general managers, 31.2% team leaders and 29.5% directors. In terms of organizational characteristics, 65.2% of the participating companies are manufacturing firms with over 200 employees. Furthermore, 24% of the businesses have been operating for ten to twenty years, while 3.3% have been established for over fifty years.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e[Insert Table 1: Demographic Characteristics]\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Exploratory Factor Analysis \u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe researchers employed principal component factoring to streamline a total of 39 Likert-scale items into the four necessary variables. Due to their inadequate reliability scores, seven items were excluded from analysis. This comprised one item related to transformational leadership, three items concerning entrepreneurial orientation, two items linked to exploratory innovation, and one item associated with exploitative innovation. In the confirmatory analysis, the remaining 32 items were utilized. For the constructs of transformational leadership, entrepreneurial orientation, and exploratory and exploitative innovation, the Kaiser-Meyer-Olkin(KMO) sampling adequacy values were 0.97, 0.96, 0.91, and 0.94, respectively, all exceeding the threshold of 0.70 (see Table 2). This suggests that there are enough items to effectively predict each variable. Additionally, upon reviewing the KMO and Bartlett’s test results, it was confirmed that the questionnaire data are appropriate for confirmatory factor analysis. Furthermore, before evaluating the structural relationships, collinearity was assessed. The findings reveal that the VIF values for all latent variables are below 3, indicating the absence of multi-collinearity issues [65 ].\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e[Insert Table 2: Summary of Exploratory Factor Analysis Results]\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Reliability and Validity\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eWe also tested measurement reliability in terms of composite reliability and Cronbach α, reported in Table 3. The minimum was 0.7 these values are above the minimum which approves the reliability [66 ]. Second, the construct validity was evaluated using convergent and discriminant validity measures and consistent with [66 ], factor loading, AVE, and CR. Table 3 also presents factor loadings of 0.84 to 0.96 (all β min 0.6), CR values of 0.94 to 0.97 (all above =0.7), and AVE's from.82 to.86 ( all above= 0.5 ). Consequently, the convergent validity of all measurements was adequate.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e[Insert Table 3: Standardized loading and reliabilities for the measurement model]\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Discriminant validity\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe discriminant validity of the measurement model reflects the extent to which a particular latent construct is distinguished from other constructs [66]. This study used [67] measure of AVE to assess discriminant validity. This approach assesses the discriminant validity of the research instrument by comparing the square root of the AVE with the correlations among the latent variables. Table 4 shows that the square root of AVE for each construct (diagonal elements in bold) is greater than the correlations among constructs in the model. It, therefore, provided strong support for the construct reliability, as well as for the convergent and discriminant validity of the scales.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e[Insert Table 4: Discriminant validity of the measurement model]\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Confirmatory factor analysis \u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eA confirmatory factor analysis was conducted, which included 32 items and explained four major latent variables. The indicators for model-fit measures taken into consideration to endorse the suitability of structural models were the Minimum Discrepancy Function by Degrees of Freedom divided (CMIN/DF), Standardized Root Mean Squared Residual (SRMR), Comparative Fit Index (CFI), PCLOSE, and Root Mean Square Error of Approximation (RMSEA). According to Hu and Bentler (1999), the acceptable threshold level for CMIN/DF is acceptable fit \u0026gt; 3, excellent fit \u0026gt; 1, the acceptable threshold range for CFI is 0.9, and values greater than 0.95 are considered excellent. Likewise, for SRMR, the acceptable range is between 0 and 0.08; as well as RMSEA, outstanding values should be lower than 1 since its excellent acceptance region is from 0 to 0.05, a value higher than 0.05 and lower than 0.08 is acceptable, and values above 1 are considered poor. Finally, for PCLOSE, acceptable fit \u0026lt; 0.05, excellent fit \u0026gt; 0.05, respectively. As indicated on Table 5 CMIN/DF =1.37 : excellent( acceptable fit\u0026gt;3, excellent fit \u0026gt;1) CFI =0.983: excellent (above than \u0026gt;0.95 is considered good), GFI= 0.844: Acceptable (above than 0.80 is usually acceptable, although some prefer \u0026gt;0.90), AGF I= 0.821: Acceptable ( above than 0.80, ideally above 0.90); TLI = 0.982: Excellent (above 0.95 is good) RMSEA = 0.042: Excellent (below 0.05 indicates a close fit), SRMR=0.032(below 0.05 indicating a close fit). Overall, these indices collectively indicate that the hypothesized model adequately describes the data, and hence, the model fit is justified based on these fit indices.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e[Insert Table 5: Indices for Model Fit]\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Structural Model \u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eBesides assessing the suitability of the measurement model, the structural component of the specified model is also analysed. The results of the full hypothesized structural model indicate that the structural model is indeed well-fitting. The CFI indicates that the model is well-fitting at 0.983 while the GFI is 0.844, AGFI is 0.821, and TLI is 0.98 which all fall within the Acceptable range while the RMSEA is at 0.042 and SRMR is 0.0349 which indicates that the model is well-fitting. Overall, these indices, of which many are above undisputed thresholds, suggest that the hypothesized model sufficiently describes the data, which are consistent with the model fit indices and hence the justification for the model fit is well established. \u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Direct Effects Analysis \u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe results in Table 6 \u0026amp; Figure 2. Show that the effects of transformational leadership and entrepreneurship orientation on exploratory and exploitative innovation are statistically significant. Therefore, H1, H2 andH3 are supported .Specifically, H1a and H1b proposed positive effects of transformational leadership on exploratory and exploitative innovation, respectively. As shown in Table 6 and Figure 2, the influence of transformational leadership on exploratory and exploitative innovation had values of (β = 0.37, t =5, p \u0026lt; 0.001) and (β =0.32, t = 4.2, p\u0026lt;0.001), respectively. This indicates the positive and significant influence of transformational leadership on both innovation types. However, the effect of transformational leadership on exploratory innovation is greater than the effect on exploitative innovation. Transformational leadership, according to H2, should be positively related to entrepreneurship orientation. This hypothesis is supported by the data (β = 0.46, t= 6.9, p \u0026lt;0.001). The results also revealed that entrepreneurship orientation directly and positively influenced exploratory innovation (β =0.21, t= 2.93, p\u0026lt; 0.05), supporting H3a. However, the influence of entrepreneurship orientation on exploitative innovation was positive but insignificant (β = 0.12, t=1.6, p = 0.104), hence H3b was not supported.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003e[Insert Figure 2: Path coefficients of the structural model]\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u003cem\u003e[Insert Table6; Standardized path coefficients]\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e Mediation Analysis\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eH4 proposed that entrepreneurial orientation is a mediator between transformational leadership and both exploratory (H4a) and exploitative innovation (H4b). Looking at the relationship between entrepreneurial orientation and transformational leadership and exploratory innovation, the results showed that entrepreneurial orientation has a significant impact (β = 0.131, t = 2.3, p \u0026lt; 0.05) on this relationship, so H4a is supported. The results showed that transformational leadership has no significant effect on exploitative innovation through entrepreneurial orientation (β = 0.074, t = 1.45, p = 0.119) so H4b is not supported\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003e[Insert Table 7; Results of mediation Analysis]\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e"},{"header":"Discussion","content":"\u003cp\u003eResearch demonstrates that transformational leaders play a critical role in fostering innovation; however, their impact on both exploratory and exploitative innovations remains unclear. This study seeks to clarify how transformational leadership encourages different types of innovation by investigating the mediating effect of entrepreneurial orientation. The results indicate that transformational leadership has a positive and significant direct influence on both exploratory and exploitative innovation. This supports prior studies that emphasize the significance of transformational leaders in encouraging exploratory innovations [\u003cspan citationid=\"CR68\" class=\"CitationRef\"\u003e68\u003c/span\u003e] and also in significantly facilitating exploitative innovations [\u003cspan citationid=\"CR30\" class=\"CitationRef\"\u003e30\u003c/span\u003e]. Transformational leaders can boost their followers' enthusiasm for both experimental and exploitative innovation by cultivating an environment conducive to innovation, risk-taking, and collaboration. Moreover, transformational leaders motivate their followers to develop self-confidence, which allows them to surpass their limits, which promotes exploitative innovations but is especially vital for exploratory innovations [39,69 ].\u003c/p\u003e\u003cp\u003eThe second, finding from this study is that transformational leadership and entrepreneurial orientation are strongly related. This study found a positive and significant association between transformational leadership and entrepreneurship orientation (regression weight\u0026thinsp;=\u0026thinsp;0.46, p\u0026thinsp;\u0026lt;\u0026thinsp;0.001). This study's findings are consistent with previous research indicating that transformational leadership has a beneficial impact on entrepreneurial orientation [17,18,70 ]. Furthermore, transformational leadership fosters an environment conducive to entrepreneurship and innovation within organisations [71 ,72,73 ] which has a substantial impact on the innovation process [33 ]. Our discovery that transformational leadership at the top management level has a direct impact on innovation types supports the central tenet of upper echelon theory, implying that strategic decisions (whether to pursue exploratory or exploitative innovation) reflect the upper echelon's leadership values and behaviours.\" Furthermore, entrepreneurship orientation as an organisational element mirrors top management behaviours.\u003c/p\u003e\u003cp\u003eThird, this research offers compelling evidence that entrepreneurial orientation has a positive influences exploratory innovation, regardless of how small the impact on exploitative innovation. The given discovery conforms to the overall body of literature on entrepreneurial orientation and innovation, which is always unanimous about the significance of an entrepreneurial mind-set in propelling firms to seek new opportunities and devise new solutions [62,43 ]. It has been established in the past that the entrepreneurial orientation is positively related to radical innovation [27,45,46 ]. A research conducted by [15 ] also highlights the innovative attitudes that are generated by the proactive and innovative orientations of the entrepreneurial orientations that lead to the generation of new ideas that can be used to solve unarticulated needs, hence increasing radical innovation. However, this research found no significant influence on exploitative innovations, which contradicts findings that suggest it enables both types of innovations [74 ].\u003c/p\u003e\u003cp\u003eIn this research entrepreneurship orientation exerts a more significant influence on exploratory innovation compared to exploitative innovation. This can be comprehended through its three dimensions: Pro-activeness, innovativeness and risk taking.\u003c/p\u003e\u003cp\u003eOne of the characteristics of entrepreneurial orientation is pro-activeness, which is described as a visionary approach to the market [75 ]. When they have an active mind-set, the firm is more likely to be innovative and can take opportunities of exploratory innovation [33 ] through environmental scanning; proactive firms are better placed to exploit potential opportunities in the undeserved regions as they will be able to explore them independently through the provision of exploratory innovations, which competitors might be unable to do. Moreover, proactive firms are willing to create new markets by encouraging consumers to develop new needs [\u003cspan citationid=\"CR76\" class=\"CitationRef\"\u003e76\u003c/span\u003e]. As a result, these organizations are better positioned to introduce new technologies, further fostering exploratory innovation [48 ] .\u003c/p\u003e\u003cp\u003eInnovativeness, as a dimension of entrepreneurial orientation, encourages firms to renew their existing practices and explore new domains [77 ], creating a predisposition for radical innovation. It is argued that firms with high levels of innovativeness are more willing to deviate from established practices and engage in exploratory experiments [78 ], which can lead to radical innovations. Furthermore, innovative firms tend to attract more creative employees [79 ], which enhances overall organizational creativity [80 ]. This may result in innovative firms developing a broader and deeper knowledge base that supports exploratory innovation.\u003c/p\u003e\u003cp\u003eRisk-taking involves a disposition to plunge resources into undertakings that have high chances of failure [\u003cspan citationid=\"CR81\" class=\"CitationRef\"\u003e81\u003c/span\u003e]. As the process of exploratory innovation is associated with certain risks, employers will only go into it when they are ready to accept a chance of failure. Therefore, proactive organizations show higher ability to adopt new technologies, which makes them highly covered to explore innovation. On the other hand, the companies risk-averse to risk might turn out to be less reluctant to be pursuing radical innovation. Moreover, the fact that the entrepreneurial orientation does not directly correlate with the exploitative innovation in the framework of this study can be explained by the fact that the focus on the exploitative innovation and its dependence on the managerial competencies and resource coordination is not sufficiently emphasized.\u003c/p\u003e\u003cp\u003eFor instance, a company exhibiting a robust entrepreneurial orientation might under allocate resources towards refinement, efficiency enhancements, and incremental process improvements due to a deficiency in exploitative management capability or deliberate choice to direct its resources towards exploratory innovation instead of exploitative innovation.\u003c/p\u003e\u003cp\u003eFourth, the issue of entrepreneurial orientation as a mediator in the relationship between transformational leadership and innovation is a crucial point that is examined in the study. These findings suggest that entrepreneurial orientation acts as a mediator between transformational leadership and exploratory innovation meaning that transformational leaders emphasize the promotion of entrepreneurial orientation to facilitate exploratory innovation. The above finding is in line with other studies that have found that entrepreneurial orientation mediates the relationship between transformational leadership and exploratory innovation.\u003c/p\u003e\u003cp\u003eEarlier studies have identified that entrepreneurial orientation mediates the link between transformational leadership and radical innovation [33 ]. Nevertheless, this study found that entrepreneurial orientation does not significantly mediate the relationship between transformational leadership and exploitative innovation. This conclusion supports the assertions made by [33 ], showing that entrepreneurial orientation does not act as a meaningful mediator in the dynamics between transformational leadership and exploitative innovation. A key factor contributing to this result is the considerable authority of founders in large and medium-sized manufacturing companies in Ethiopia. These founders make essential decisions that influence the company\u0026rsquo;s daily activities, which grant a substantial level of managerial control. This degree of flexibility in control produces an entrepreneurial-friendly environment that eventually bolsters radical innovation [\u003cspan citationid=\"CR82\" class=\"CitationRef\"\u003e82\u003c/span\u003e]. More so, it is imperative to recognize the fact that there may be other strategic orientations that could be playing a very critical mediating role between the transformational leadership and exploitative innovation. [33 ] provided strong evidence of a significant mediating effect of market orientation in this context.\u003c/p\u003e"},{"header":"Conclusion","content":"\u003cp\u003eThe primary objective of the study was to explore whether entrepreneurial orientation plays a mediating role between transformational leadership and innovation. Moreover, the study examined the direct impact of transformational leadership on two aspects of innovation, and the influence of entrepreneurial orientation in the exploratory and exploitative innovation. The findings revealed mixed results. Three of the proposed hypotheses were validated, whereas two were dismissed. Specifically, the study has identified the positive impact of transformational leadership on both exploratory and exploitative innovation. It also found the indirect impact of transformational leadership on the exploratory innovation through the mediation of entrepreneurship orientation. However, the expected high direct impact of entrepreneurship orientation on exploitative innovation and the mediating role of the same in the relationship between transformational leadership and exploitative innovation could not be affirmed. The study concludes that entrepreneurship orientation is not a mediator in the relationship between transformational leadership and exploitative innovation. Instead, it suggests a partial mediation of entrepreneurial orientation in the association between transformational leadership and exploratory innovation. These findings imply that subsequent studies should investigate the mediating influence of alternative strategic orientations, including market orientation and learning orientation\u003c/p\u003e\u003cdiv id=\"Sec28\" class=\"Section2\"\u003e\u003ch2\u003eTheoretical Contribution\u003c/h2\u003e\u003cp\u003eThis study adds to the innovation literature in two significant ways.\u003c/p\u003e\u003cp\u003eFirst, by building on upper echelon theory and incorporating ideas from resource-based theory, the current study expands on previous research by identifying the mechanism through which transformational leaders encourage exploratory and exploitative innovation. Based on the results of the study, transformational leaders could encourage both exploratory and exploitative innovation through the focus on entrepreneurial orientation. In this way, the current research is useful to upper-level researches as it clarifies the role of transformational leaders in promoting exploratory and exploitative innovation, providing a theoretical identification of the role of entrepreneurship orientation and empirical confirmation of the mediation process. Earlier research has already started to analyse how transformational leadership affects innovation indirectly by facilitating knowledge exchange [10 ]. The results of this research suggest that further studies are required to investigate the complexity of the relationship between transformational leadership and exploratory and exploitative innovation to contribute further information to scholars and practitioners.\u003c/p\u003e\u003cp\u003eSecond, the resource-based theory is of the view that competitive advantage is generated by the internal resources and competencies of an organization. The findings of the study confirm this perspective of the issue because they contain empirical information about the effect of entrepreneurship orientation on different forms of innovation. Consequently, the results are used to contribute to the development of RBT in the area of innovation research.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec29\" class=\"Section2\"\u003e\u003ch2\u003eManagerial and Policy Implications\u003c/h2\u003e\u003cp\u003eThis study carries significant implications for managers, decision-makers, and policymakers.\u003c/p\u003e\u003cp\u003eFirst, empirical studies indicate that transformational leadership is important in promoting both the exploratory and exploitative innovation. It means that companies ought to be focused on development and existence of transformational leaders. One of the benefits that Ethiopian manufacturing companies can get is to promote transformational leadership that favours entrepreneurship, strategic thinking, motivation, and empowerment. To decision-makers and policymakers, the results indicate that transformational leadership should be encouraged to enhance innovation in medium and large-sized manufacturing firms. The policy-makers can contribute to this by providing leadership training, financial rewards to innovate and create networks promoting exploration as well as refinement. These companies can also be helped through consulting firms which offer leadership development programs, mentorship and practical training utilizing transformational leadership.\u003c/p\u003e\u003cp\u003eSecondly, given the different nature of exploratory and exploitative innovations, transformational leaders should consider the fit of the strategic orientation with the requirements of the type of innovation pursued to prevent costly and resource-intensive investments in ineffective orientations. For instance, the result of this study shows that top managers seeking radical innovation should stimulate an entrepreneurial orientation. Conversely, the results indicate that transformational leaders might fail to encourage the exploitative innovations using an entrepreneurial orientation as it does not affect exploitative innovation directly. Therefore, transformational leaders ought to consider other strategy orientations that can more readily support the exploitative innovation like the market orientation or the learning orientation. Also, the results suggest that practices related to transformational leadership are critical in facilitating activities related to entrepreneurial orientation, which subsequently boost the innovation capabilities.\u003c/p\u003e\u003cp\u003eTransformational leaders cultivate an entrepreneurial orientation by advocating values like innovativeness, risk-taking, and proactivity, which are subsequently adopted by their followers [42 ]. By effectively communicating these values and the expected behaviours\u0026rsquo;, leaders enable followers to understand the desired objectives. This clarity enhances their willingness to experiment, engage in creative thinking, and adopt risk-taking behaviours [40 ]. Consequently, this study recommends that directors and managers of Ethiopian manufacturing firms should concentrate on identifying effective strategic orientation including market orientation, resource orientation, learning orientation as well as strategies such as operational excellence and knowledge sharing along with appropriate methods to cultivate an environment that encourage employees to actively and positively engage in entrepreneurial orientation activities ,ultimately leading to exploitative innovation. Additionally, fostering transformational behaviours in lower-level leaders is crucial, as they play a key role in guiding and impacting the operational activities needed to execute strategic initiatives and promote innovation.\u003c/p\u003e\u003c/div\u003e\n\u003ch3\u003eResearch Limitations and Suggestions for Future research\u003c/h3\u003e\n\u003cp\u003eThe research has evident limitations that subsequent researchers need to consider. Firstly, since the data was collected solely from large and medium manufacturing companies in Ethiopia, the ability to generalize the results is naturally limited. The findings are primarily applicable to large manufacturing organisations in major urban regions of developing economies, but they may not apply to rural firms or those in other sectors/countries. To create solid comparisons between the industrial and service industries, future research should include data from rural enterprises and other contexts, such as the service sector. Second, this study does not encompass all factors that influence exploratory and exploitative innovation. Future investigations should expand the existing theoretical framework by incorporating additional mediating or moderating variables into the analysis. For example, researchers should explore the mediating effects of customer orientation and learning orientation on the relationship between transformational leadership and innovation. Furthermore, conducting a comparative analysis on how different leadership styles influence various aspects of innovation in both the manufacturing and service sectors is essential. Finally, the study used a cross-sectional design to investigate the correlations among the constructs and was unable to assess potential changes in causal relationships in the long term. A longitudinal study would overcome this limitation and consolidate the results.\u003c/p\u003e"},{"header":"Abbreviations","content":"\u003cdiv class=\"DefinitionList\"\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eAGFI\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eAdjusted goodness-of-fit index\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eCFI\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eComparative fit index\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eAVE\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eAverage variance explained\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eCMIN/DF)\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eChi-square statistics to the degree of freedom\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eCR\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eComposite reliability\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eCr\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eCritical ratio\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eEO\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eEntrepreneurship orientation\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eGDP\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eGross Domestic Product GFI:Goodness-of-fit index\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eKMO\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eKaiser\u0026ndash;Meyer Olkin\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eNNFI\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eNon-normed fit index\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eNFI\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eNormed fit index\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eRBT\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eResource-based-Theory\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eRMSEA\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eRoot-mean-square error of approximation\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eSMC\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eSquared multiple correlation\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eSig\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eSignificance level\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eSWR\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eStandardized regression weight\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eTLI\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eTucker\u0026ndash;Lewis index\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv class=\"DefinitionListEntry\"\u003e\u003cdiv class=\"Term\"\u003eTL\u003c/div\u003e\u003cdiv class=\"Description\"\u003e\u003cp\u003eTransformational leadership\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003c/div\u003e"},{"header":"Declarations","content":"\u003cp\u003e\u003cstrong\u003eCompliance with Ethical Standards\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u0026nbsp;Disclosure of potential conflicts of interest\u0026nbsp;\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eAll authors certify that they have no affiliations with or involvement in any organization or entity with any financial interest or non-financial interest in the subject matter or materials discussed in this manuscript.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eResearch involving Human Participants and/or Animals\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThis study was carried out in complete adherence to the ethical standards established by the pertinent institutional and/or national ethics committees, following the 1964 Helsinki Declaration and its subsequent modifications or comparable ethical guidelines. The Institutional Research Ethics Committee has approved this study. Written approval has been obtained from the committee for conducting the research.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eInformed consent\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u0026nbsp;Informed consent was acquired from every individual participant engaged in the research, and they were made aware of the study’s objectives, their rights, voluntary involvement, and any potential risks or discomforts. Data were anonymized prior to analysis in order to maintain participant confidentiality.\u003c/p\u003e\n\u003cp\u003e\u0026nbsp;All procedures involving human subjects complied with relevant ethical regulations and guidelines.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eFunding\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe research did not receive specific grants from funding agencies, but researchers maintained complete independence in designing and executing the project.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eConsent for publication\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eAll authors have agreed to publish the manuscript.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n\u003cli\u003eLei H, Leaungkhamma L, Le P B (2020) How transformational leadership facilitates innovation capability: the mediating role of employees\u0026rsquo; psychological capital. 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DOI:10.1080/00208825.1996.11656685\u003c/li\u003e\n\u003c/ol\u003e"},{"header":"Tables","content":"\u003cp\u003eTables 1 to 7 are available in the Supplementary Files section\u003c/p\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Transformational leadership, Entrepreneurial orientation, Exploratory innovation, Exploitative innovation","lastPublishedDoi":"10.21203/rs.3.rs-7826827/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7826827/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe importance of transformational leadership in driving innovation has been emphasized through extensive research; however, the specific mechanisms that connect transformational leadership to innovation capabilities, including both exploitative and exploratory innovation, remain largely unexplored. This study seeks to examine whether entrepreneurial orientation serves as a mediator in the connection between transformational leadership and both exploratory and exploitative innovation within Ethiopian manufacturing firms, utilizing upper echelon theory and resource-based theory as its foundation. To achieve this, a quantitative research approach employing structural equation modelling was utilized, encompassing a sample of 624 individuals drawn from 208 medium and large-scale manufacturing companies. The firms in the sample were chosen through a stratified sampling technique from an overall pool of 600 medium and large manufacturing entities. The findings of the study indicate that transformational leadership significantly contributes to promoting both exploratory and exploitative innovation, revealing a strong relationship. Additionally, transformational leaders enhance exploratory innovation by prioritizing entrepreneurial orientation. Nevertheless, entrepreneurial orientation does not influence the connection between transformational leadership and exploitative innovation. Consequently, this study adds to upper-echelon research by elucidating the pathway through which transformational leaders facilitate exploratory and exploitative innovations, while also theoretically establishing and empirically confirming the distinct mediating role of entrepreneurial orientation.\u003c/p\u003e\n\u003cp\u003eJEL Code: M12, L26, O31\u003c/p\u003e","manuscriptTitle":"The Effect of Transformational Leadership on Exploratory and Exploitative Innovation: The Mediating Role of Entrepreneurial Orientation","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-11-05 06:55:02","doi":"10.21203/rs.3.rs-7826827/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"3afe9146-c0c4-4a0f-ab5a-7d7f3eebefab","owner":[],"postedDate":"November 5th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2026-05-12T21:54:05+00:00","versionOfRecord":[],"versionCreatedAt":"2025-11-05 06:55:02","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-7826827","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-7826827","identity":"rs-7826827","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}