The Effect of Leadership Styles on Employees’ Performance: The Mediating Role of Employee Motivation at Selected Ethiopian Banks
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Date
2026-05-23
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Addis Ababa University
Abstract
This study sought to evaluate the impact of leadership styles on employee performance in Ethiopian commercial banks where employee motivation played a mediating role. Four types of leadership styles considered in this study included transformational, transactional, servant and laissez-faire leadership. The research design utilized in this study was descriptive and explanatory, while data was collected using a questionnaire among the employees of Awash Bank S.C. and Hibret Bank S.C. Simple random sampling technique was used in order to obtain 310 respondents out of the targeted 450 respondents. PLS-SEM with the help of SmartPLS 4.0 software was used in analyzing the data collected. The structural model accounted for 42.2% of the variance in employee performance. As for the direct effect, transformational leadership positively impacted employee performance significantly while the effect of laissez-faire leadership on employee performance was significantly negative. Transactional leadership snd servant leadership found to be statistically insignificant. On the other hand, the mediation effect of employee motivation was found to be significant in all four-leadership style-performance relations. The results showed that servant leadership had the highest indirect effect, followed by transformational leadership, whereas the lowest indirect effect was registered for laissez-faire leadership. Thus, the study suggests that leadership styles can be identified as a significant predictor of the performance level achieved by employees working in commercial banks in Ethiopia. In addition, this relationship is positively affected by employee motivation. Transformational and servant leadership styles have proven to yield the best results in motivating employees and improving their performance. At the same time, laissez-faire leadership negatively affects employee motivation and performance. The study recommends introducing transformational and servant leadership training programs in banks as well as implementing a reward system based on performance.
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Commercial Banks, Employee Performance, Employee Motivation, Leadership Styles.