Transformational leadership and objective performance in banks

This investigation examines the relations between transformational/ transactional leadership and performance indicators of 20 different banks, using a sample of some 1500 observations. Leadership behaviour is measured by the Multifactor Leadership Questionnaire (MLQ), which is used for the first time in the German-speaking area. The psychometric quality of the German MLQ is analysed and found to be inadequate. We therefore derive and cross-validate a modified four-factor MLQ. This is the first empirical study that relates leadership behaviour to objective performance indicators without any qualitative or subjective influence. Objective performance measures take into account customer features and local market conditions, and show whether reasonable targets are over- or underperformed. Based on LISREL model estimates we find support fur the hypothesis that transformational leadership affects performance over and above transactional leadership. Another new aspect of this study is the distinction between long-term and short-term performance. We find that core dimensions of transformational leadership are more strongly related to long-term than to short-term performance. Individualised Consideration is positively related to short-term but negatively related to long-term performance.