The mediating effect of innovative behavior and entrepreneurial passion on the relationship between transformational leadership and organizational effectiveness in Islamic Banks

Abstract

In recent years, there has been growing body of knowledge on the aspect of Islamic banking effectiveness worldwide. Nevertheless, there are a limited number of studies on the efficiency and effectiveness of Islamic banking in Malaysia. Accordingly, this study attempts to fill the gap in the current analysis on the effectiveness of Islamic banking in Malaysia. If Islamic banks measure their effectiveness based on their customers‘ perception, they can achieve superior results. Transformational leadership motivates staffs who work with customers which can lead to the improvement of organizational effectiveness. In this regard, this thesis develops a model in order to investigate the impact of transformational leadership on organizational effectiveness of Islamic banking through the mediating effects of innovative behaviour and entrepreneurial passion. A quantitative research approach was used to conduct this study in which 418 customers of Malaysian Islamic banks were surveyed through purposive sampling procedure. Structural Equation Modelling was used to analyse the data. The structural model demonstrated satisfactory reliability and validity measures. The measurement model also showed satisfactory convergent and discriminant validity. Furthermore, all paths in the research model were found to be significant. Particularly, the results revealed that transformational leadership strongly affects the organizational effectiveness. This study contributes to theoretical and practical knowledge by providing the evidence on the relationship between transformational leadership and organizational effectiveness. In general, findings of the study respond to the needs of the transformational leadership to consider innovative behaviour of employees and to bring about entrepreneurial passion which subsequently can result in increased effectiveness of Malaysian Islamic banks. This study is based on cross-sectional research design and future research is recommended to undertake longitudinal analysis in order to explore changes over time as changes unfold.