The Influence of Leadership Styles on Small Business Performance in Malaysia: A Conceptual Paper

Abstract

Small and Medium Enterprises (SMEs) play a crucial role in Malaysia’s economic development; however, sustaining performance in the increasingly volatile post-COVID-19 environment remains a significant challenge. Leadership style is widely recognised as a key determinant of organisational outcomes, yet prior empirical studies report inconsistent findings regarding its influence on SME performance. This paper develops a conceptual framework to examine how transformational and transactional leadership styles affect small business performance in Malaysia. Drawing on transformational leadership theory, transactional leadership theory, and contingency theory, the framework explicates the mechanisms through which specific leadership behaviours-namely idealised influence, inspirational motivation, intellectual stimulation, individualised consideration, contingent reward, and management-by-exception-shape performance outcomes in SMEs. By synthesising fragmented empirical evidence and contextualising leadership-performance relationships within the Malaysian SME setting, this paper contributes theoretically by clarifying why different leadership styles may produce varying performance effects. The proposed framework offers guidance for future empirical testing and provides theoretically grounded insights for entrepreneurs and policymakers seeking to enhance SME competitiveness and sustainability.