Effect of Entrepreneurial Leadership on Firm Performance: The Mediating Role of Innovation Capability of SMEs in Idah Local Government Area, Kogi State, Nigeria

Abstract

Despite the recognised importance of SMEs in economic development, their performance in developing economies remains suboptimal, raising concerns about the effectiveness of leadership practices in driving sustainable growth. This study examined the effect of entrepreneurial leadership on firm performance, with particular focus on the mediating role of innovation capability among small and medium-sized enterprises (SMEs) in Idah LGA, Kogi State, Nigeria. The study was anchored on the Resource-Based View (RBV) and Dynamic Capabilities Theory (DCT), which explain how organisational resources and capabilities translate into competitive advantage. The study adopted a quantitative, cross-sectional survey design and collected data from 397 SMEs selected through stratified random sampling from a population of 3,842 active registered SMEs in Idah LGA, Kogi State. Data were gathered using a structured questionnaire measured on a 5-point Likert scale. The hypotheses were tested using Partial Least Squares Structural Equation Modelling (PLS-SEM), and mediation analysis was conducted using bootstrapping. The findings revealed that entrepreneurial leadership has a significant positive effect on both innovation capability and firm performance. Innovation capability also significantly influences firm performance. Furthermore, innovation capability partially mediated the relationship between entrepreneurial leadership and firm performance, indicating that leadership enhances performance both directly and indirectly through innovation processes. The study concludes that innovation capability is a critical mechanism through which entrepreneurial leadership translates into improved SME performance. Theoretically, the study extends RBV and DCT by validating a leadership–innovation–performance nexus in a developing economy context. Practically, it recommends that SME managers and policymakers prioritise developing innovation capabilities alongside entrepreneurial leadership practices to enhance competitiveness and sustainable growth.