Heterogenous Impact of Leadership Styles on Employee Performance and the Mediating Role of Employee Engagement: An Empirical Study on Private SMEs in Malawi

Abstract

In recent years, the crucial role of matching leadership styles with employee performance in the management of Small and Medium Enterprises (SMEs) has been increasingly acknowledged in different developing countries, Malawi included. Properly adopting, a given leadership style can keep employees performing at their best, which sends a productive signal for organizational growth and sustainability. Conversely, adopting an inappropriate leadership style can often lead to a low level of motivation within employees. Thus, in general terms, performance targets are not achieved time and again due to an inability to motivate individual or groups of employees within an enterprise. However, a lot of small and medium enterprises' proprietors and managers in Malawi struggle to adopt appropriate leadership styles as they have a poor understanding of how they relate with the management of small and medium enterprises. Furthermore, there is still a lack of research in the management literature regarding the best leadership style for Malawi's SME sector. It is, therefore, imperative to identify that leadership style which best fits the management of SMEs in Malawi to heighten Employee performance. Subject to the said pressing issues, the purpose of this study is to determine the direct and indirect impact of leadership styles on the levels of performance of employees in SMEs while taking employee engagement as an interposing variable, more specifically focused on the level of democratic, autocratic, and charismatic leadership. The study will thus try to examine how each behavioral component of those three styles of leadership would function towards promoting SME performance within the Malawian economy. Thus, the study recommends that charismatic leadership style be prioritized in the SME sector to enhance Employee performance. It is also suggested that a comprehensive leaders' training program, organized by recognized institutions, be introduced to enhance the level of Democratic and Autocratic leadership skills among SME entrepreneurs in Malawi. This paper scrutinized leadership styles impact on performance levels of employees in SMEs with employee engagement as the mediating variable. Three hundred questionnaires were distributed, and data from 231 employees from various private small and medium enterprises in Malawi were collected. SPSS was used to process and measure the analysis and structural models. Using a cross-sectional survey design, data was collected from 231 employees from various private SMEs, with subsequent analysis using structural equation modeling to explore direct and indirect effects. The results indicate that charismatic leadership had the strongest positive impact on both employee engagement and performance, followed by democratic and autocratic leadership styles. Charismatic leadership was particularly effective in fostering an emotionally engaging work environment that promoted both higher performance and motivation. Democratic leadership also significantly enhanced engagement and performance by fostering inclusivity in decision-making processes. Interestingly, autocratic leadership, although traditionally seen as limiting autonomy, positively impacted employee performance by providing structure and clarity. Employee engagement was found to mediate the relationship between all three leadership styles and employee performance, emphasizing its critical role in translating effective leadership into productive outcomes. The study concludes that adaptive leadership styles, tailored to specific organizational contexts, can significantly enhance employee engagement and performance, providing actionable insights for leaders in Malawi’s SME sector. One of the key variables in determining how engaged employees are with their leader, the company, and the company's success is their leadership style. So far, there have been studies on the relationship between leadership style, employee performance, and employee engagement at the district level. However, there has yet to be research on the relationship between leadership style, employee performance, and the engagement of employees in the private sector in Malawi, which is a gap that needs to be researched. Therefore, this study examines the relationship between three leadership styles, namely Autocratic leadership, charismatic leadership, and Democratic leadership, concerning engagement in work and performance of private sector employees.