Transactional Leadership, Organizational Learning, and Performance in Pakistani Smes: Evidence from an Unsupported Mediation Pathway

In resource constrained small and medium sized firms (SMEs), the link between transactional leadership, organizational learning and firm performance is still unclear. This study aims to assess the role of organizational learning as a mediator between transactional leadership and organizational performance of SMEs in Pakistan. Partial least squares structural equation modeling (PLS-SEM) was employed to analyze the cross-sectional questionnaire data obtained from 400 owners/managers from Karachi, Hyderabad, Sukkur and Larkana. The correlation between transactional leadership and organizational learning was positive with β = 0.637, t = 19.718, p < 0.001. The linear relationship between organizational learning and performance was not statistically significant (β = −0.063, p = 0.378) and the same was observed for the linear association between transactional leadership and performance (β = 0.062, p = 0.362). Also, the indirect effect was not significant (p = 0.383). This result separates out learning-related organizational processes from evidence that they are correlated with current performance. Implementation capacity, innovation, and absorptive capacity are potential mechanisms of conversion that were not tested as pathways in the focal pathway. The study enhances understandings of the concept of transactional leadership in EESMEs and provides opportunities for future research that are longitudinal and capability-centered.