Innovation and intellectual capital as intermediary variables among transformational leadership, transactional leadership, and organizational performance

Purpose The purpose of this paper is to examine the mediating effect of intellectual capital and innovation on the relationship between transformational and transactional leadership and organizational performance in Jordanian banks located in Irbid city. Design/methodology/approach A questionnaire that targeted 350 respondents resulted in 298 usable ones with a response rate of 85.14 percent. To test the research hypotheses, a structural equation model was conducted, in addition to descriptive statistics that provided background on the respondents. Findings The findings indicate that transformational and transactional leadership relate positively to organizational performance. The results also support the argument that intellectual capital and innovation played mediating roles in transformational and transactional leadership and organizational performance. Practical implications - The present study provides managers with empirical proof that possessing strong intellectual capital in its three dimensions seems to help the banking sector in Jordan to reinforce their ability to generate both radical and incremental innovation. Also, applying an effective leadership style will motivate and lead to superior performance. Originality/value Although papers have shown that leadership style is an important factor influencing employees' performance and outcomes, this is one of the few studies that investigates the interrelationships between leadership styles, intellectual capital, and innovation on organization performance. Furthermore, it is the first to test the model on the banking sector in Jordan.