How Strategic Leadership Drives Financial Performance: The Mediating Effect of Organizational Innovation Capability

Abstract

This study examines how strategic leadership influences firm financial performance through the mediating role of organizational innovation capability. Grounded in Upper Echelons Theory, the Resource-Based View, and Dynamic Capabilities Theory, the study employed a quantitative, cross-sectional design using survey data from 240 organizational respondents and analysed the proposed relationships through PLS-SEM using ADANCO. The findings reveal that strategic leadership significantly enhances organizational innovation capability and firm financial performance, while innovation capability also positively influences financial performance. The mediation analysis further confirms that organizational innovation capability partially mediates the relationship between strategic leadership and financial performance, accounting for approximately 38.2% of the total leadership effect. The study demonstrates that strategic leadership creates financial value both directly and by strengthening the organization’s capacity to innovate. These findings highlight innovation capability as an important organizational mechanism connecting leadership practices with superior financial outcomes.