A New Transformational Leadership Model Enhancing Sustainable Performance in Manufacturing SMEs Through Entrepreneurial Orientation

Abstract This study investigates the relationship between transformational leadership (TL) and sustainable performance (SP) in manufacturing SMEs in Yemen, with entrepreneurial orientation (EO) examined as a mediating variable. Using Partial Least Squares Structural Equation Modeling (PLS-SEM) with bootstrapping, the results confirm that TL significantly enhances EO and SP, while EO itself positively influences SP. Mediation analysis reveals that EO partially mediates the TL–SP relationship, underscoring its role as a strategic conduit through which leadership translates vision into sustainable outcomes. Among TL dimensions, inspirational motivation, intellectual stimulation, and strategic direction significantly drive EO, while charisma and individualized consideration show no direct effect. The findings are theoretically grounded in the Resource-Based View, Dynamic Capabilities Theory, Social Learning Theory, and Upper Echelons Theory, highlighting EO as an intangible resource and adaptive capability that strengthens SMEs’ sustainability strategies. Practically, the study emphasizes the importance of leadership behaviors that foster innovation, proactiveness, and risk-taking in resource-constrained environments. Limitations include the context-specific focus on Yemeni SMEs, reliance on cross-sectional data, and exclusion of moderating variables. Future research should adopt longitudinal designs, explore sectoral differences, and expand to underrepresented regions. Overall, the study contributes to both theory and practice by clarifying the mechanisms through which TL and EO jointly enhance sustainable performance in SMEs.