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Impact of leadership styles on employees’

performance with moderating role of positive
psychological capital

Sajjad Ahmad Baig, Saher Iqbal, Muhammad Abrar, Irfan Ahmad Baig, Fiza
Amjad, Muhammad Zia-ur-Rehman & Muhammad Usman Awan

To cite this article: Sajjad Ahmad Baig, Saher Iqbal, Muhammad Abrar, Irfan Ahmad Baig, Fiza
Amjad, Muhammad Zia-ur-Rehman & Muhammad Usman Awan (2019): Impact of leadership styles
on employees’ performance with moderating role of positive psychological capital, Total Quality
Management & Business Excellence, DOI: 10.1080/14783363.2019.1665011

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Total Quality Management, 2019
https://doi.org/10.1080/14783363.2019.1665011

Impact of leadership styles on employees’ performance with

moderating role of positive psychological capital
Sajjad Ahmad Baiga*, Saher Iqbala, Muhammad Abrarb, Irfan Ahmad Baigc,
Fiza Amjada, Muhammad Zia-ur-Rehmana and Muhammad Usman Awand
a
Department of Management Science, National Textile University Faisalabad, Faisalabad,
Pakistan; bLayallpur Business School, Government College University, Faisalabad, Pakistan;
c
Department of Social Sciences, Nawaz Sharif Agriculture University Faisalabad, Faisalabad,
Pakistan; dInstitute of Quality & Technology Management New Campus, University of the Punjab
Lahore, Lahore, Pakistan

The study aimed to investigate the most effective leadership style that enhances the
employees’ performance at the workplace and also evaluate the impact of leadership
styles (Laissez-faire leadership, Transformational leadership, Transactional
leadership,) on employees’ performance in the textile sector of Pakistan. The study
explored the moderating role of Positive psychological capital to examine the
relationship between leadership styles and employee performance. A quantitative
research technique was used, and Data were collected from the lower to middle-level
manager of the textile sector. The findings of this study showed that laissez-faire
leadership has a significant but negative impact on employee’s performance; however
the moderating effect of psychological capital has made this relationship negatively
significant. Transformational leadership has a significant impact on employee
performance. Moreover, transactional leadership has an insignificant effect on
employee performance by adding psychological capital as a moderator; this
relationship has become positively significant.
The textile organisations of Pakistan have been facing many challenges, including
lower employee satisfaction and performance. Through the transformational leadership
styles, the organisations may improve the employees’ performance as the study
supported this argument. The results would have practical implications for
policymakers, employees, and management. The study has contributed in developing
the relationship between the leadership styles and employee performance by adding
an unexplored moderator, which is – Positive psychological capital – in an ignored
social setting of the textile organisation.
Keywords: Transactional Leadership; Laissez-faire leadership Transformational
leadership; Employees’ performance; Positive psychological capital

Introduction
The world is shifting towards an economy where the essential resource of an organisation is
its knowledge (Popli & Rizvi, 2016). Thus the employees are needed to be upgraded con-
tinually with the enhancements in their professional skills and knowledge, supplementing
the standardised expertise which they need for the accomplishment of their tasks. Many
researchers work on leadership styles to estimate their effect on employee performance
(Ogbeide, Groves, & Cho, 2008). When the leaders give autonomy to the employees,
they would be more loyal and motivated to perform efficiently which would enhance organ-
isational productivity with better outcomes.(Kim & Beehr, 2018). For creating innovative

*Corresponding author. Email: sajjad.baig@hotmail.com

© 2019 Informa UK Limited, trading as Taylor & Francis Group

2 S.A. Baig et al.

ideas, there is a need of the competent human resource (Jyoti & Bhau, 2015). In order to get
innovative ideas, leaders play a vital role (Jyoti & Bhau, 2015). All the theories of TQM
(Total Quality Management) powerfully show the importance of leadership styles in the
organisation’s top management to motivate the employees for the success of quality
improvement programmes (Teoman & Ulengin, 2018).
There are many leadership styles; however, in this study, the main focal point in this
study is on Transactional, laissez-faire, and Transformational leadership styles. Leadership
and employee job satisfaction plays a significant role in organisational success (Hamidifar,
1985). The Leaders provide such environment of the workplace for the employees where
they may perform well (Skakon, Nielsen, Borg, & Guzman, 2010). Leadership style also
makes a positive and negative impact on the employees’ performance (Skakon et al.,
2010). In some situations, the leaders have to take decisions instantly. Therefore, the
leaders should have some capabilities to take immediate corrective actions (Leadership,
Dixon, Weeks, Boland, & Perelli, 2016). Such as Contingent rewards, Management by
exception, Laissez-faire. In the view of the contingent rewards, employees do their work
rightly on time, and the rewards are given to them, however, if employees do not do the
work accurately and properly, they are punished. According to the approach of Manage-
ment by exception, the focus is on resources to check the response to any event. In
Laissez-Fair approach, employees do all the work by themselves; the leader involves in
the case when the problem occurs (Rothfelder, Ottenbacher, & Harrington, 2012).
With reference to Bass and Avolio, laissez-faire leadership is that
the absence of leadership, avoidance of intervention, or both. With Laissez-faire (Avoiding)
leadership, there are generally neither transactions nor agreements with followers. Decisions
are often delayed; feedback, rewards, and involvement are absent; and there is no attempt to
motivate followers or to recognize and satisfy their needs As compared to other leadership
style laissez-faire leadership is unproductive leadership. (Sut I Wong Humborstad, 2016)
The psychological capital is related to the positive psychology of employees, showing the
positive employees behaviour rather than the negativity of the employees. By using positive
psychological capital, the organisation becomes more successful as the positive psychologi-
cal capital creates positivity among employees, enhancing the employee’s level of perform-
ance (Tosten & Toprak, 2017). According to Luthans, Avolio, Avey, and Norman (2007)
and Youssef and Luthans (2007) the idea of positive Organizational capital had been pre-
sented many centuries ago’.

Textile sector of Pakistan

The textile industry is the most famous and oldest industry in all over the word as clothing is
the basic need of everyone all over the world (Abbas, 2015). Textile sector of Pakistan is the
fourth biggest producer and third-biggest user of textile products in all over the world. Paki-
stan textile sector has been facing problems due to the fluctuation in prices and weak fore-
casting system (Abbas, 2015). The top management of the textile organisations need to
cope the fundamental problems, encountering the employees, consider about how the
employees would be satisfied and motivated by implementing the strategic plans or
approaches for the accomplishment of the assigned tasks as well as an achievement of
the organisational goals. Besides, the current top management should take such initiatives
for the implementation of such leadership styles which are helpful to boost up the satisfac-
tory level of the subordinates with good performance.
According to Avolio and Bass (2004), Full Range Leadership (FRL) Model includes
transformational leadership, transactional leadership, and laissez-faire. All leadership
 Total Quality Management & Business Excellence 3

styles of FRL model have been measured by different ways in different settings. And these
styles showed different behaviour in different contexts. So the researchers are still unable to
conclude the findings, which leadership styles are more appropriate in accordance with the
circumstances (because) there are distinctive features of human nature and culture of the
specific environment where the implementation of the leadership styles is different
across the globe (Bhagat & Steers, 2009).
Most of the textile organisation in Pakistan is owned and control (administrative) by
families. Due to poor leadership style, most of textile industry did not achieve its full poten-
tial since employee performance, and their productivity has now dropped behind when
compared to other textile producing countries. In Pakistani textile industry, weak leadership
style is cause for its decline. Riaz and Haider (2010) state that effective leadership always
plays an important role in the growth and better performance of the employees and their
organisation. According to the contingency theory, no specific leadership style is the best
fit for all situations as it depends on the characteristics of leaders, and capabilities of the
followers and the most important is the complexities of the situations and problems on
hand and the role of issues in overall organisational success (Griffin, 1999). Koutra et al.
(2018),stress the need for research which focuses on leadership styles and employee
performance in differnt settings. In this way, there is an intense need to think about the
impact of leadership style on employee performance in Pakistani setting to look at all the
inclusiveness of the Full Range Leadership model. Moreover, it would also make to help
the textile leadership by knowing how their subordinates see their leadership styles and
how they impact on their performances in various perspectives.
The number of textile industries has been increased in the last few decades in the sub-
continent. Some studies have been conducted to explore the impacts of leadership styles
and psychological capital on the textile industries. Despite an increase in the number of
textile industries, very few in-depth studies have been conducted to explore the managerial
issues of textile industries , especially in the context of leadership style and psychological
capital. Three theoretical models were used in this study to develop a theoretical framework
of this paper. Firstly, we adopted the ideas of Fiedler leadership contingency model which
proposed that effective employees performance depends upon the leaders’ ability to lead,
leaders’ capabilities, desired style, and behaviour. This theory propounded that leaders
should adopt that style which best to the situation and at once stimulate the employee per-
formance (Iqbal, Anwar, and Haider, 2015). Secondly, we used the Path-Goal theory. In
1971 Robert House proposed the Path-Goal theory. This theory describes that employee
will be satisfied with their leader if they feel their leaders will lead them (Ramay,
Majeed, Javed, Saeed, & Ismail, 2017). Thirdly we rely on the theory of conservation of
resources (COR) suggests that individuals resources are limited (Hobfoll, 2001). So, the
resources are allocated to fulfil the needs of individuals, and these allocated resources
will produce different results.

Objectives of the research

The objectives of this research are to examine more effective leadership style that affects
employees’ performance positively and also find out the role of psychological capital
for enhancing the effective employees’ performance:

. To investigate the impact of leadership styles (Laissez-faire leadership, Transforma-

tional leadership, and Transactional leadership) on employees’ performance.
4 S.A. Baig et al.

. To examine the impact of leadership styles (Laissez-faire leadership, Transforma-

tional leadership, and Transactional leadership) on employees’ performance
through the moderating role of psychological capital.
. To suggest recommendation for policymakers on the basis of findings.

Literature review
Leadership
Leaders influence the organisation of their followers. Leadership has a strong impact on
employees (Batista-Taran, Shuck, Gutierrez, & Baralt, 2009). This paper focusses on the
leadership style theory. Leaders demonstrate particular leadership styles; the most
common investigated are transactional, transformational and laissez-faire styles (Webb,
2008) and also according to the Bass, leadership theory includes three mechanisms:

. Transactional leadership
. Transformational leadership
. Laissez-faire

Transactional leadership
In Transactional leadership, appreciation is given to high achiever employees through a
reward system (Batista-Taran et al., 2009). Transactional leadership emphases on observing
behaviour and exchange process through a contingent reward system to engage the employ-
ees and enhance the employee’s performance. For the last five years, the researchers have
been researching and finding the powerful impacts of transactional and transformational
leadership on employees’ work behaviour. According to Zhang’s study, there is a negative
association among classical leadership and staff work, transactional leadership and employ-
ees work (Popli & Rizvi, 2016). But some studies show that there is a positive relationship
between orgnisational’ performance and transactional leadership style and organisational
performance depends on employees’ performance (Iş̇ can, Ersarı, & Naktiyok, 2014). The
relationship between organisational performance and transactional leadership
has also been proved with the help of Meta-analysis study (Iş̇ can et al., 2014).
H1: There is a relationship between Employees’ Performance and Transactional leadership.

Transformational leadership
Transformational Leadership is a leader’s capability to motivate followers by leadership
qualities. According to cf. Avolio ‘Transformational leaders articulate a vision via meta-
phors, stories, personal reflections, humor, and images, and they tend to speak to the fol-
lower’s minds and their sense of purpose rather than to their wallets only’ . In order to get
innovative ideas, leaders play a vital role (Jyoti & Bhau, 2015). All the theories of TQM
(Total Quality Management) powerfully show the importance of effective leadership
styles i in the organisation’s top management to motivate the employees for the success
of quality improvement programmes and boost employee performance (Teoman &
Ulengin, 2018). In Transformational Leadership, the followers’ dream about high achieve-
ments is due to Transformational Leadership style. Transformational Leadership style influ-
ences the followers through stories, humour, personal reflection metaphors, and images as
compared to the punishments. According to the viewpoints of the transformational
 Total Quality Management & Business Excellence 5

leadership style, it helps to develop more commitment and motivational level among the
employees. According to the previous research on transformational leadership, the organ-
isations may enhance effective performance and productive outcomes (Zhu, Chew, & Span-
gler, 2005). According to the Pygmalion effect theory, leaders can influence the
performance of employees through inspirations and expectations. So good expectations
can create more good results. Transformational leadership leaders have more expectations
from employees through providing more support and encouragement, and create more good
results.
H2: There is a relationship between Transformational leadership and Employees’ Performance.

Laissez-faire leadership
Laissez-Faire is a kind of leadership that is neither transactional nor transformational.
Laissez-faire leadership is related to a passive form of management. To use this leader-
ship style, we get implementation even when organisations need corrective actions. Actu-
ally, Laissez-faire leadership is where things are going on by their own way. This
leadership style is implemented when supervisors feel hesitation in taking decisions,
actions and responsibility. These kinds of leaders avoid taking any position; avoid
giving any suggestion to followers and avoid giving help to their followers. These
kinds of leaders do not want to become prominent; they do not want to supervise any-
thing. Under these kinds of leadership style, employees do their work by their own
self; sometimes they take help by other persons then the leaders like they get help
from peers, other managers and even other organisation members (Luthans et al.,
2007). Laissez-faire leadership is considered a non-leadership technique. In which
leaders play a passive role. According to the research of Rothfelder et al. (2012)
laissez-faire kind of leadership is commonly used in industries. This kind of leadership
style has negative impact on subordinates’ job satisfaction level (Luthans et al., 2007).
H3: There is a relationship between Laisses-faire leadership and Employees’ Performance .

Positive psychological capital

Positive Psychological Capital, or primarily PPC, is used in offices as a positive psychologi-
cal science (Luthans & Youssef, 2007). Positive Psychological Capital is defined as ‘the
study and claim of positively oriented human resource strengths and psychological
capacities which can be measured, developed, and with success managed for performance
improvement in today’s workplace’ (Luthans et al., 2007).
Consistent with (Luthans et al., 2007) resilience is being explained as ‘The developable
capability to rebound or convalesce from adversity, conflict, and failure or perhaps positive
events, progress, and accumulated responsibility’. When someone faces a problem, then
resilience acts positively (Cheung, Tang, & Tang, 2011).
According to C. Rick Snyder, ‘Hope’ may be a word that is used in daily language.
According to researchers’ hope is described as a ‘positive motivational feature state
that’s supported an interactively subsequent sense of successful (1) agency (goal-directed
energy) and (2) pathways (planning to satisfy goals)’ (Avey, Luthans, Smith, & Palmer,
2010). The positive psychologist is (Luthans et al., 2007) considered as a source of defining
optimism as a POB strength.
6 S.A. Baig et al.

Efficacy is better instead of any other capability of POB. Yeo and Neal (2013) elabor-
ates the comprehension theory and extensive research efficacy which is better than any
other capabilities of POB.

Employee’s performance with moderating role of psychological capital

The theory of the conservation of resources (COR) suggests that individuals’ resources are
limited (Hobfoll, 2001). Therefore, the resources are allocated to fulfil the needs of individ-
uals and these allocated resources will produce different results. Many studies discussed
that the skills of an individual could influence the process of resource allocation of the indi-
vidual (Witt & Carlson, 2006).
Witt and Carlson (2006) believed that the use of limited resources decreases job dedica-
tion. People with a high degree of psychological capital equitably distribute the resources
(time and energy), and they are confident of making a positive effort to minimise the con-
flict. Therefore, the influence of work-family conflict on job dedication is weaker. The
people with a low degree of psychological capital are less motivated, and they are not con-
fident in dealing with conflicts. In return, they try to minimise the job commitment to
protect their limited resources.
In this manner, if they are under extraordinary weight, the individuals try to raise
sources to encounter the potential loss of resources in the future (Kobasa & Puccetti,
1983). The individual resources with psychological resources that are necessary internal
resources. This examination has centred around the majority of psychological resources,
which is also known as psychological capital, a developing field of research. Luthans
and his associates were the primary researchers had adapted the psychological capital
into the board of management. He stresses his representation of positive psychological
advancement (Luthans & Youssef, 2004).
On the other hand, the trait theory, psychological capital, has a focal construct including
self-efficacy, expectation, positive thinking, and obstruction. Psychological capital is a criti-
cal source which is utilised to upgrade of organisation adequacy. Then again, it can likewise
be supported and created and influencing the cognitive ability of an individual, level of job
satisfaction, and performance (Avey, Reichard, Luthans, & Mhatre, 2011; Luthans, Avolio,
Walumbwa, & Li, 2005). Different psychological constructs are understood as a core,
(Hobfoll, 2002).
While thinking about self-efficacy, hope, optimism, and resilience as critical facets of
psychological capital, its combined effect is expected to be broader than any individual
dimension (Luthans et al., 2007). Rego, Sousa, Marques, and e Cunha (2012) called this
phenomenon a ‘synergistic effect.’ According to the ‘synergistic effect,’ psychological
Capital is considered as a whole rather than its dimensions. Sweetman and Lutherans
suggested a psychological capital that predicts a positive working relationship, and in
view of the challenges, the people with high psychological capital are more likely to
take control of the situation so that they can begin to work efficiently.
According to the research, there is a positive rapport between performance and positive
psychological capital (Luthans & Youssef, 2007). This strong rapport shows that the four
positive capacities ‘hope, resilience, optimism and efficacy’ of psychological capital which
may help to be motivated, goal attainment and better performance. In a transformational
leadership style, employees are more satisfied because of leaders’ moral values and give
employees self-empowerment. Transformational leaders help followers to build goals by
their self, and leaders also develop confidence in the followers to accomplish their goals.
Leaders also help followers how to overcome adversity through psychological capital. It
 Total Quality Management & Business Excellence 7

shows that psychological capital effects positively on employee performance and transfor-
mational leadership. In a transformational leadership style, employees are more satisfied
because of leaders’ moral values and give employees self-empowerment. Transformational
leaders help followers to build goals by their self and leaders also develop confidence in the
followers to accomplish their goals. Leaders also help followers how to overcome adversity
through psychological capital. It shows that psychological capital effects positively on
employee performance and transformational leadership. In transactional leadership,
leaders involved in active participation to take corrective action at the right time and
employees are satisfied with this type of leadership. According to Thomas & Velthouse,
it affects positively on employees’ performance and transactional leadership (Pieterse &
Van Knippenberg, 2010). According to Luthans, there is a positive relationship between
psychological capital and employees’ performance (Toor & Ofori, 2010). Crawford
shows that there is a positive impact of psychological capital on transformation leadership
and shows the low positive impact of psychological capital on transactional leadership and
laissez-faire leadership (Toor & Ofori, 2010). More precisely, Positive Psychological
Capital employees (followers) are categorised as hopeful, optimistic, resilient, and confi-
dent, and these positive abilities, attitude and capacities motivate them to perform well.
By discussion, we developed the following hypothesis.
H4: Psychological capital moderates the relationship between transformational leadership and
employees’ performance.
H5: Psychological capital moderates the relationship between transnational leadership and
employees’ performance.
H6: Psychological capital moderates the relationship between laissez-faire leadership and
employees’ performance.

Theoretical framework
The framework was derived from the literature on Fiedler leadership contingency model,
and the Path-Goal theory is used to measure the relationship between leadership styles
and employees performance. Fiedler leadership contingency model which proposed that
effective employees performance depends upon the leaders’ ability to lead, leaders’ capa-
bilities, desired style, and behaviour, as well as employees competency and attitudes. This
theory propounded that leaders should adopt that style which best to the situation and at
once stimulate the employee performance (Iqbal, Anwar, & Haider, 2015). Based on litera-
ture proposed the Path-Goal theory, he describes that employee will be satisfied with their
leader if they feel their leaders will lead them to satisfaction and they do well (House, 1971).
Furthermore, this study examines the moderating role of psychological capital by theory of
conservation of resources (COR). This theory suggests that individual’s resources are
limited (Hobfoll, 2001). So, the resources are allocated to fulfil the needs of individuals,
and these allocated resources will produce different results Figure 1.

Research methodology
The preceding two sections studied the literature about influences of Leadership Style on
employees’ performance with the moderating role of positive psychological capital.
According to Do Sul, Costa, & Fillmann, 2014 the research design refers to a ‘plan blue-
print or guide for data collection and interpretation – a set of rules that enable the investi-
gator to conceptualise and observe the problem under study.’ According to (Krauss & Putra,
2005), a research population is a group of those people who are selected to be in the
8 S.A. Baig et al.

Figure 1. schematic diagram.

research. the sample is defined as a set of people that are selected from the specific
population.
Due to accessibility, time, resources, and budgetary constraints, this study only focused
on the textile sector of Faisalabad only. Respondents were be drawn textile sector in Faisa-
labad, Punjab only.

Measuring instruments
A questionnaire was used in this research to acquire information on the ‘Impact of Leader-
ship Styles on employees’ performance: Moderating role of Positive psychological capital.’
There were five variables used in this survey, one was transformational leadership, second
was transactional leadership, third one was laissez-faire leadership, forth one was psycho-
logical capital, and the fifth one was employees’ performance. Five-point Likert scale was
used to measure all variable of this study Table 1.

Data collection
For collection of the data, (primary data collection) technique was used. Primary data col-
lected through the questionnaires. Data collection techniques are divided into two tech-
niques: one is quantitative, and second is qualitative (Bryman, 2004). The quantitative
method is preferable instead of the qualitative method (Bojlén & Lunde, 1995). This

Table 1. Reference table.

Sr. Reliability
No Variable Items Scale adopted from coefficient
1 Transformational 9 (Bass & Avolio, 2010) 0.94
Leadership
2 Transactional Leadership 5 (Bass & Avolio, 1992) 0.84
3 Laissez-faire Leadership 5 (Bass & Avolio, 1992) 0.94
4 Psychological Capital 22 (Luthans et al., 2007) 0.89
5 Employees Performance 3 Auer Antoncic & Antoncic, 0.7200
2011
 Total Quality Management & Business Excellence 9

study is directly related to the textile sector of Pakistan. In Pakistan, the textile firms have
located in various geographical regions of Pakistan, e.g. Karachi, Faisalabad, and Lahore.
Berenson, Levine, and Szabat (2009) have disclosed that under such conditions when the
study population has been located in wider geographical areas, in such condition, the
cluster probability sampling would be the most appropriate sampling technique to get a
representative sample because it is cost-effective in contrast to simple random sampling.
Berenson et al. (2009) gave the explanation of the cluster probability sampling. The Pakis-
tani textile industry has been divided into three clusters. The division had been done, based
on the three regions of Pakistan. Among these regions, Faisalabad region was selected as a
cluster, based on the availability of respondents. Snowball sampling technique was adopted
to overcome the issue of high security and busy schedules of the managers of mills. Data
were collected from lower to middle-level managers, working with their current textile
organisation for at least one year. One year with the current textile organisation was a pre-
condition to making sure that the participants have enough knowledge about the current
organisational culture and practices and also gone through performance appraisal. A
face-to-face survey technique was adopted for collecting quality data. Two hundred ten
interviews were conducted. However, 198 questionnaires were selected for analysis
which is enough for a demanding analysis including measurement model on PLS-SEM.

Data analysis technique

Model assessment
In order to of examining the results, PLS-SEM smart 3.0 (Bontis & Serenko, 2007) is used
and find inner and outer path modelling through PLS SEM 3.0 (Wetzels & van Oppen,
2009).

Assessment of measurement model (reliability and validity analysis)

Table 2 summarises the item of the factor loading (Bass, Avolio, Jung, & Berson, 2003),
average variance, composite reliability, and Cronbach’s alpha. Table 2 shows the reliability
of each item. The factor loading of each item should be higher than 0.7 (Ribbink, van Riel,
Liljander, & Streukens, 2004). The value of the loading of each item should be 0.7 or
greater than 0.7, and the value of average variance should be 0.5 (Bontis & Serenko,
2007). To check construct reliability, composite reliability is used (Real, Roldán, & Leal,
2014).
In the table below, all the loading of items is above 0.7, and the value of the average
variance of all items is greater than 0.5. Through composite reliability and average variance
check the validity so, according to the table, the value of composite reliability and average
variance is above 0.7 and 0.5. It proves that the validity of all items is at the right level. The
reliability of items is examined through the value of Cronbach’s alpha. The value of Cron-
bach’s Alpha should be at least 0.5, according to the table, the value of Cronbach’s Alpha of
all items is greater than 0.5, it proves that the reliability of all items is at the right level
Figure 2.

R-square
Table 3 indicates the results of the structural model from PLS SEM yield. The transforma-
tional and transactional leadership and psychological capital as a moderator are found to be
10 S.A. Baig et al.

Table 2. Evaluation of the measurement model.

First order construct Item Factor Loading AVE CR Cronbach’s Alpha
TF TF2 0.803 0.599 0.930 0.917
TF3 0.717
TF4 0.834
TF5 0.832
TF6 0.844
TF7 0.837
TF8 0.788
TA TA10 0.876 0.754 0.939 0.919
TA11 0.863
TA12 0.893
TA13 0.848
TA14 0.861
LF LF15 0.827 0.714 0.926 0.900
LF16 0.854
LF17 0.824
LF18 0.896
LF19 0.821
PCF PCF1 0.856 0.624 0.869 0.806
PCF2 0.777
PCF3 0.762
PCF4 0.762
EP EP42 0.874 0.705 0.877 0.790
EP43 0.814
EP44 0.828
Note: TF = transformational leadership; TA = transactional leadership; LF = laissez-faire leadership PCF =
psychological capital factor; EP = employee’s performance.

significantly associated with employees’ performance respectively, explaining 37 percent

of the variance.

Convergent and discriminate validity

According to previous research, the average variance is used to measure discriminate val-
idity (Wong, 2013). For the purpose in order to find validity, calculate the square root of the
average variance, and then the average variance is linked with the construct correlation.
Concerning the previous studies, all the values should be higher than the inner rows and
columns (Bontis & Serenko, 2007). Table 4 indicates that this condition is fulfilled,
which confirms the discriminate validity at the construct level.

Evaluation of structural model

The researcher uses PLS SEM to run the procedure of nonparametric bootstrapping (Sleu-
waegen, 1992). Nonparametric bootstrapping is used for the purpose of providing confi-
dence intervals for all parameter estimates. The structural model provides the finding to
the hypotheses of the conceptual framework. To find the stability and significance
between the variables use nonparametric bootstrapping modelling (Ribbink et al., 2004).
Table 5 explains about which hypotheses are accepted and which hypotheses are rejected
by indicating the values of path coefficient, the sample means, standard deviation, T
value, and P values.
 Total Quality Management & Business Excellence
11
Figure 2. PLS Factor Loading and R-square. Note: TF = transformational leadership; TA = transactional leadership; LF = laissez-faire leadership PCF = psychologi-
cal capital factor; EP = employee’s performance.
12 S.A. Baig et al.

Table 3. The R-square value.

Predictor construct Target Construct R Squared Predictive accuracy
TF, TA and LF EP 0.375 Moderate
Note: R-Square predictive accuracy level: 0.25 = weak, 0.5 = moderate, 0.7 = Substantial, TF = transformational
leadership; TA = transactional leadership; LF = laissez-faire leadership; EP = employee’s performance.

Table 5 displays the results of the structural model through PLS output. First, we
hypothesised (H1) that Transformational leadership has a positive impact on employees’
performance of the textile sector in Faisalabad, Pakistan. The Table 5, highlights positive
β value 0.147, which means 14% influence on principle variables, in another word, we
can say that through Transformation leadership, the organisation will increase 17 percent
of employees’ performance. The t-value 1.962 that reflects the strong influence of transfor-
mational leadership on the performance of textile sector employees and has significant p-
value 0.050 level, which is less than or equal to 0.05, so (H1) is accepted (β = 0.147, p <
0.05, t < 1.962).
Hypothesis H2, Transactional leadership has a positive influence on employees’ per-
formance. The results show that positive β values of 0.082, which means 8% influence
on principle variables. The t-value 1.302 which means that Transactional leadership has
insignificant impact on employees’ performance. The p-value 0.194, which is above than
standard value 0.05, which shows that hypothesis (H2) is rejected (β = 0.082, p = 0.194 >
0.05, t = 1.302).
The third hypothesis (H3) that Laissez-faire leadership negatively affects employees’
performance. Table 5, indicate that the negative β value is -0.273, which means negative
influence of Laissez-faire leadership on employee’s principle, The t-value of this
Laissez-faire leadership is 5.170, which reflects the significant involvement of laissez-
faire leadership on the employee’s performance. This significant as a result indicates that
p-value 0.000 level, which is less than standard value 0.05 and a negative relationship
between laissez-faire leadership and employees’ performance, therefore H3 is accepted,
its means laissez-faire leadership impact on the employee’s performance negatively (β =
− 0.273, p = 0.000 < 0.05, t = 5.170).
Hypothesis (H4) is Psychological capital has a moderating effect on the relationship
between Transformational leadership and employees’ performance. Findings show that β
value is 0.095, which means it has 9% influences on the relationship between transforma-
tional leadership and employee’s performance. The t-value of moderation effect is 2.070
that reflects the significant and positive influence on transformational leadership and

Table 4. Convergent and discriminate validity.

EP LF PC TA TF
EP 0.839
LF −0.317 0.845
PC 0.421 −0.207 0.790
TA 0.162 0.054 0.001 0.868
TF 0.130 0.015 −0.091 0.439 0.774
Note: TF = transformational leadership; TA = transactional leadership; LF = laissez-faire leadership PCF =
psychological capital factor; EP = employee’s performance.
Table 5. Evaluation of structural model.

Total Quality Management & Business Excellence

Hypothesis Relationship Path coefficient Sample Mean (M) Standard Deviation (STDEV) T Values P Values Decision
H1 TF ->EP 0.147 0.143 0.075 1.962 0.040 Supported
H2 TA ->EP 0.082 0.088 0.063 1.302 0.194 Not supported
H3 LF ->EP −0.273 0.000 0.053 5.170 0.000 Supported
H4 Moderating Effect 1 ->EP 0.095 0.114 0.046 2.070 0.039 Supported
H5 Moderating Effect 2 ->EP 0.161 0.169 0.056 2.899 0.004 Supported
H6 Moderating Effect 3 ->EP −0.283 −0.288 0.092 3.086 0.002 Supported
Note: TF = transformational leadership; TA = transactional leadership; LF = laissez-faire leadership PCF = psychological capital factor; EP = employees’ performance.

13
14 S.A. Baig et al.

employee’s performance; this moderate variable has a significant p-value of 0.039, which
hypothesis (H4) is accepted (β = 0.095, p < 0.05, t = 2.070).
The study hypothesised (H5) that psychological capital has a moderating effect on the
relationship between Transactional leadership and employees’ performance. Results indi-
cate that β value is 0.161, which means it has 16% influences on principle variables. The
t-value shows that employee retention has a significant moderating effect on the relation-
ship between transnational leadership and employees’ performance. The t-value of moder-
ating effect is 2.899 that reflects high influence between two variables; this moderate
variable has a significant p-value of 0.004, that shows that the hypothesis (H5) is accepted
at (β = 0.161, p < 0.05, t = 2.899).
Hypothesis (H6) is Psychological capital has a moderating effect on the relationship
between Laissez-faire leadership and employees’ performance. Table 5, and Figure 3 high-
lights the negative β value of −0.283, which means, it has negative influence on the Laissez-
faire leadership and employees’ performance. The t-value of moderation effect is 3.086 that
show significant influence between the relationship of Laissez-faire leadership and employ-
ees’ performance and has a significant p-value of 0.002. Which accept H6 at (β = −0.283, p
< 0.05, t = 3.086).
Moderating Effect 1: According to Figure 4, psychological capital positively moder-
ates the relationship between employees’ performance and transformational leadership.
Thus, Hypothesis H4 is supported.

Figure 3. PLS Bootstrapping model with β and P values. Note: TF = transformational leadership; TA
= transactional leadership; LF = laissez-faire leadership PCF = psychological capital factor; EP =
employees’ performance.
 Total Quality Management & Business Excellence 15

Figure 4. Interaction effect of transformational leadership and psychological capital in predicting

employees’ performance.

Moderating Effect 2: In Figure 5, psychological capital positively moderates the

relationship between employees’ performance and transactional leadership. Thus, Hypoth-
esis H5 is supported.
Moderating Effect 3: According to Figure 6, psychological capital negatively moder-
ates the relationship between laissez-faire leadership and employee’s performance. Thus,
Hypothesis H6 is supported, but psychological capital negatively moderates the relation-
ship between laissez-faire leadership and employee’s performance.

Discussion
The findings of the current study aligned with previous studies like Janaki Gooty, Mark
Gavin, Paul D. Johnson, (2009) found that there is a positive association between

Figure 5. Interaction effect of transnational leadership and psychological capital in predicting employ-
ees’ performance.
16 S.A. Baig et al.

Figure 6. Interaction effect of laissez-faire leadership and psychological capital in predicting employ-
ees’ performance.

employees’ performance and transformational leadership. Some other studies also prove
that there is a positive association between employees’ performance and transformational
leadership (Rothfelder et al., 2012).
According to Avolio and Howell (1993), there is a negative relationship between trans-
national leadership and employees’ performance. Another scholar Rothfelder et al. (2012)
also found a negative relationship between laissez-faire leadership and employees’ per-
formance. (Gooty, Gavin, Johnson, Frazier, & Snow, 2009). According to Avolio and
Howell (1993), there is a negative relationship between transactional leadership and
employees’ performance. Previous studies support that people respond with positive motiv-
ation when they are following and working for those leaders, who are seeming as helpful
about their employees. Another research showed the negative relationship between laissez-
faire leadership and psychological capital (Toor & Ofori, 2010).
According to Dvir and Shamir (2003) individuals would be expected to have more need
for growth, who perceives themselves as having greater positive characteristics, such as
more responsible, take initiatives, and being independent critical thinkers. Al-Gattan
(1985) argue that when followers working with leaders who are more active, will outper-
form with a higher need for growth as compared to those with a lower need for growth.
The findings of the research suggest that employees need for growth moderate the link
between leadership and employees performance. Furthermore, the Galatea effect may
also suggest additional theoretical basis for expecting significant and positive psychological
capital have moderating effect on the relationship between transformational leadership and
employees work engagement (Dvir, Eden, Avolio, & Shamir, 2002). Theories on Transfor-
mational leadership were drawn heavily on hypothesising the positive relationship between
leadership styles and the follower’s performance (Bass & Avolio, 1992). Secondly, Trans-
formational leadership style engages the employees in intellectual dialogue as well as devel-
ops a sense of trust and confidence among followers. However the Laissez faire leadership
fails to develop sense of trust and confidence, and engage the employees in intellectual
dialogue. So that the Laissez faire leadership unable to motivate their followers to
perform well.
 Total Quality Management & Business Excellence 17

Conclusion
This study found that leadership styles have a strong positive association with the employ-
ee’s performance through the moderating role of psychological capital. This implies that
Transformational and transactional leadership styles are effectual leadership styles for
enhancing the employee’s performance in textile sector of Pakistan. However, laissez-
faire leadership cannot impact on employees’ performance as the employees cannot be
motivated without managers’ support, and guidelines. Organisations with leadership capa-
bilities can use their psychological capital more efficiently, which enhance the employee’s
performance. As leaders, who demonstrate empowering behaviours through transforma-
tional leadership create more positive emotions in followers. The study has shown that
transformational and transactional leadership should be implemented at workplace and
the organisations should launch training and development programmes. (Barling, Weber,
& Kelloway, 1996; Dvir et al., 2002), it is also recommended that endeavours to build fol-
lower Positive psychological capital have been supplemented by leadership skills enhance-
ment programme would enhance the employee performance. This examination has
important ramifications in the territories where employees have not grown and developed
their psychological capital. This examination has given extra evidence that psychological
capital is to be sure to open to develop and it has integrated into the organisation.’
Human resource management programmes. The consequences of the present study have
suggested that transformational leadership can help to expand an employee’s innovative be-
haviour. Hence, the organisation should not just promote transformational leadership or
debilitate transactional leadership and Laissez-faire Leadership. But also, should consider
the development of psychological capital of their employees. The current study leads to
the current knowledge both theoretically and practically. First, from a theoretical stand-
point, we broaden the perspective of leadership styles by empirically seeing the moderating
role of psychological capital between leadership style and its outcome. The beneficial and
moderating role of PsyCap is analysed between leadership styles and employee perform-
ance. Second, by applying the leadership styles framework and positive psychological
capital concept to the context of labour orientated manufacturing textile industry, which
is providing more than 25 million jobs to the people of developing countries.
Human Resource development can increase Psychological Capital via selection and a
few specifics forms of training (e.g. building tacit knowledge, using functional work
teams). Psychological capital development programme can improve the level of efficacy,
hope, optimism, and resilience through proper design of intervention and training pro-
grammes, such as helpful feedback, achievable goal, real views, and process of focused
strategies are examples of psychological capital development programme (Luthans &
Youssef, 2004). With Psychological capital developing programmes, the organisation
should need to focus on stimulating the skills of desirable leadership styles of their man-
agers. It has appeared to be most helpful to psychological capital and transformational lea-
dership abilities of followers.

Implication
The current study leads to the current knowledge both theoretically and practically. Â First,
from a theoretical standpoint, we broaden the perspective of leadership styles by empiri-
cally seeing the moderating role of psychological capital between leadership style and its
outcome. The beneficial and moderating role of Psychological Capital is analysed
between leadership styles and employee performance. Second, by applying the leadership
styles framework and positive psychological capital concept to the context of labour
18 S.A. Baig et al.

orientated manufacturing textile industry, which is providing more than 25 million jobs to
the people of developing countries. Thus, the textile sector of Pakistan the organisations
should keenly pay attention towards motivational leadership practices. Employees’ require-
ments and interest should be recognised, and they should assist employees for the develop-
ment of positive psychological capital, and effective leadership skills, which enables to
improve their performance and help the organisation to attain a sustainable competitive
advantage.

Limitations and future research

The first limitation of this research is the question of generalizability. This research is
directed only in textile sector of Faisalabad, Pakistan. The second limitation is that we
used cross-sectional data for interpretation of the results in this study, but longitudinal
data will give a clearer picture of the model.
The third limitation is that we used non-probability sampling technique for data collec-
tion, but normally, the results of probability sampling will be more valid for generalising the
results.

5.4 Social contribution

The social contribution of our study is mainly to improve the welfare of employees. The
welfare of employees is possible in that way when an organisation uses an effective leader-
ship style that enhances employees’ performance and employees’ performance automati-
cally enhances organisational performance. When organisations get high-profit rate, then
organisations also work on the welfare of employees. When employees’ welfare is
increased, they work hard and show loyalty. Furthermore, this study shows that which lea-
dership style is preferable for the purpose to get effective and efficient employees’
performance

Disclosure statement
No potential conflict of interest was reported by the authors.

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