Entrepreneurial Leadership and SME Performance: Examining the Mediating Role of Innovation Capability

Abstract

This study examined the effect of entrepreneurial leadership on SME performance through the mediating role of innovation capability among Micro, Small, and Medium Enterprises (SMEs) in Makassar City, Indonesia. A quantitative approach with an explanatory research design was employed. Data were collected from 80 SME owners and managers using purposive sampling and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4. The results revealed that entrepreneurial leadership positively and significantly affects innovation capability and SME performance. Innovation capability also has a positive and significant effect on SME performance and significantly mediates the relationship between entrepreneurial leadership and SME performance. These findings indicate that entrepreneurial leadership contributes to improved business performance both directly and indirectly through the development of innovation capability. The study concludes that innovation capability serves as an important mechanism linking entrepreneurial leadership to SME performance. The findings support the Resource-Based View and Dynamic Capability Theory and provide empirical evidence on the importance of entrepreneurial leadership and innovation capability in enhancing SME performance.