Abstract:
The main purpose of the study was to determine effect of Transformational and Transactional
leadership on SME innovation performance. The study was informed upper echelons theoretical
perspective. Explanatory research design was employed while questionnaire was used to
collect data from a sample size of 290 SMEs which was randomly selected. Findings from
multiple regression model indicated that both hypothesis were rejected at 0.05 level of
significance. This infers that transformational leadership and transactional leadership had
significant and positive effect on SME innovation. In addition, results showed that all the two
predictors (transformational and transactional leadership) explained 57.2 percent variation of
SME innovation. Thus, transformational leadership and transactional leadership make it possible
for SMEs to highly innovation achieve competitive advantage. It is therefore important for SMEs
managers to focus on understanding a transformational leadership and transactional leadership.
