Leadership Style and Business Performance in Nepal

A Seminar Paper

By
Kunal Kumar Mahato
Bachelor of Business Administration (BBA)
Third Semester
Leadership and Organizational Behavior

Submitted to
Faculty of Management
Bhaktapur Multiple Campus
Tribhuvan University

Poush, 2080
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1. Introduction
1.1 Background of the paper

Leadership style refers to the way a manager or leader interacts with their employees and
influences their behaviour and performance. Leadership is a skill that aims to accomplish
organizational goals that have an impact on all organizational operations (Stogdill, 1948). A
strong leadership style is essential for every firm to function successfully (Paudel, 2020). The
ability of one or more people at the highest level of an organization is correlated with
leadership in SMEs ((Bojadziev et al., 2019), Hossin, & Azam, & Hossain, 2023). There are
several leadership styles, such as transformational, transactional, autocratic, democratic, and
laissez-faire, each with its own set of characteristics and impact on the organization's
performance. According to a traditional viewpoint, leadership styles can be categorized as
autocratic, democratic, bureaucratic, servile, or laissez-faire (Lewin et al., 1939), but leaders
can also be situational, transactional, or transformational depending on how power is
exchanged and what outcomes are secured ((Northhouse, 2016; Yulk, 2020), Hossin, &
Azam, & Hossain, 2023). In Nepal, SMEs are typically led by autocratic leaders who make
all the decisions and have a centralized power structure. However, recent studies have
suggested that a transformational leadership style, where the leader inspires and motivates
their team, can be more effective in improving business performance in SMEs.
Business performance refers to the achievement of the organization's goals and objectives. In
SMEs, business performance is typically measured by financial indicators such as revenue,
profit, and growth. According to Koontz and Donnell (1993), a company's capacity to fulfil
objectives including high-quality products, larger market shares, superior financial outcomes,
high profits, and survival within a set amount of time is referred to as its "business
performance" (Paudel, 2020). However, other non-financial factors such as customer
satisfaction, employee engagement, and innovation can also impact business performance.
Small and medium-sized enterprises (SME) play a vital role in both developed and
developing nations, according to academics, the government, and organizations involved in
the development of the global economy such as the World Bank, ILO, SME Financing
Forum, UN, and OECD (Alifan, & Sukmawati, 2021). Small and Medium Enterprises
(SMEs) play a significant role in the Nepalese economy, accounting for a significant portion
of employment and GDP. In Nepal, SMEs made up between 95 and 98 percent of all
commercial establishments and created 83 percent of the jobs ((Pandey, 2004), Paudel, 2020).
One of the most important components in properly and successfully managing the business
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activities of a SMEs is leadership (Hossin, & Azam, & Hossain, 2023). Giving people hope
and inspiring commitment to excellence are key components of effective leadership.
((Mishra, 2018), Lama, & Pokharel, 2019). However, many Small and medium-sized
enterprises (SMEs) in Nepal face challenges related to poor leadership, which can impact
their organization's performance.
Leadership style and business performance are interlinked in SMEs in Nepal. Leadership
style and business performance are critical issues for small and medium enterprises (SMEs)
in Nepal. In the context of SMEs in Nepal, there are several issues related to leadership style
and business performance that need to be addressed. Firstly, SMEs in Nepal often face
challenges related to leadership, such as a lack of leadership skills and knowledge, and a lack
of motivation and direction. These issues can ultimately impact the organization's
performance. Secondly, SMEs in Nepal often struggle with measuring their business
performance effectively. This can be due to limited resources, a lack of understanding of
performance metrics, or inadequate systems and processes to collect and analyse performance
data. Thirdly, there is a need to understand the relationship between leadership style and
business performance in SMEs in Nepal. While several studies have explored this
relationship in other contexts, limited research has been conducted in the context of SMEs in
Nepal. Finally, there is a need to identify and recommend effective leadership styles and
strategies that can enhance business performance in SMEs in Nepal. This can involve
providing leadership training and development programs, implementing effective
performance measurement systems, and promoting a culture of continuous improvement and
innovation within SMEs. It is crucial to remember that the performance of the workforce,
which is greatly impacted by the leadership philosophies espoused by the leaders, determines
success and failure for a commercial organization like the SME (Uzohue et al., 2016). Yet,
SMEs' productivity, performance, services, satisfaction, organizational commitment, and
organizational structure are all enhanced by the employment of appropriate leadership styles
((Franco & Matos, 2015) (Hossin, & Azam, & Hossain, 2023).

1.3 Statement of the problem

Nepal is a developing country with a growing economy and a large number of Small and
Medium Enterprises (SMEs). These Small and medium-sized enterprises (SMEs) are
considered the backbone of the Nepali economy, contributing significantly to the country's
employment and GDP. However, these Small and medium-sized enterprises (SMEs) face
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several challenges in terms of leadership, management, and business performance. One big
issue that could be addressed in a study of leadership style and business performance in
Nepali
Small and medium-sized enterprises (SMEs) is the lack of effective leadership. The most
significant method for carrying out these tasks properly may be the adoption of successful
leadership styles (Hossin, & Azam, & Hossain, 2023). Effective leadership is essential for the
success of any organization, and SMEs are no exception. Prior research revealed that many
SMEs struggled to improve their organizational performance as a result of improperly
implementing a leadership style, which eventually resulted in leadership ineffectiveness
((Nazarian et al., 2017; Fayaz & Shah, 2017; Kashif Imran et al., 2018), Alifan, &
Sukmawati, 2021). However, many Nepali SMEs lack effective leaders who cannot guide and
motivate their teams to achieve their goals. In order to influence the behaviour of
subordinates and encourage them to follow the proper path in order to accomplish the
organizational goals, SMEs owners/managers need have the intense capacity to employee an
acceptable leadership style (Hossin, & Azam, & Hossain, 2023). Therefore, studying
leadership styles and their impact on business performance can help to identify the most
effective leadership style for Nepali SMEs. A strong leadership style is essential for every
firm to function successfully (Paudel, 2020). A study of leadership style and business
performance in Nepali SMEs can also address the issue of limited access to resources. Nepali
SMEs often struggle to access financial, technological, and human resources, which can
hinder their growth and competitiveness. Therefore, understanding how leadership style can
affect resource allocation and utilization can help Nepali Small and medium-sized enterprises
(SMEs) make better use of their limited resources and improve their overall performance.
The findings of this research, which are in line with (Yang's, 2008) findings, showed that
both transformational and transactional leadership styles had a considerable favourable
impact on corporate success (Paudel, 2020). Transformational leadership is a style where the
leader inspires and motivates their team to achieve higher levels of performance. The
influence of transactional leadership is significantly increased by transformational leadership
(Bass, 1985). Transactional leadership is thought to produce anticipated performance with
little chance to significantly increase effort and outcomes due to the ineffectiveness of
contingent negative reinforcement and a number of other factors. In contrast, transformational
leadership brings about wider change in accordance with effort, performance, and
development (Ferenita, & Nugraha, & Sukoco, 2020). Transactional leadership is a style
where the leader focuses on rewarding or punishing their followers based on their
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performance. Transactional leaders inspire followers with enough confidence to carry out
their duties and they acknowledge their wants and needs of the follower, but they also
describe how those wants and needs will meet if the follower gives the desired performance.
Yet, transactional leadership may occasionally be fulfilling and efficient (Ferenita, &
Nugraha, & Sukoco, 2020). Leadership comes down to listening to people, helping them,
motivating them, influencing them, and including them in decision-making and problem-
solving processes with the goal of attaining the end goal and assuring an effective team
(Hossin, & Azam, & Hossain, 2023). Thus, this seminar paper tries to answer following
questions:
i. What is the effective leadership style in Nepali SMEs?
ii. How effective leadership style can be implement to enhance the business performance
in SMEs in Nepal?
1.4 Objectives

The objectives of this seminar paper are as follows:

• To review effective leadership style to improve the business performance.

• To review the relationship between leadership style and business performance in

1.5 Methods

This seminar paper is basically descriptive and analytical in nature. It is based on many
current policy models and regulations developed to support financial inclusion in Nepal. The
necessary information is collected from the related books, journals, reports and articles. The
collected information is arranged in the need of the content/ context. The collected
information is analyzed to draw the conclusion of the seminar paper. The information and
other material regarding the topic is review in conceptual framework as well as empirical
issues.
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2. Description and Analysis

Leadership is the ability to influence and guide others towards achieving a common goal. It
involves setting a clear vision, providing direction, and motivating individuals to work
towards achieving a specific objective. Studying leadership is an ancient skill (Hossin, &
Azam, & Hossain, 2023). Leadership style refers to the approach a leader uses to influence
and guide others. Different leaders may have different leadership styles, depending on their
personality, values, and beliefs. In this article transactional leadership and transformational
leadership style are discussed.
Transactional leadership is the interaction between leaders and followers necessary to
produce the routine performance that both leaders and followers have agreed upon.
According to Bass (2008), transactional leaders are reactive and prioritize their followers'
material ties. Organization performance is increased through transactional leadership.
Transactional leaders use a system of rewards and punishments to motivate their employee.
Transactional leadership is particularly effective in SMEs where employees have clear job
roles and responsibilities which can be an effective leadership style for SMEs where
employees have clear job roles and responsibilities. According to Paudel (2020). This
leadership approach encourages followers to perform and commit to the company at higher
levels (Yukl, 2013).
Transformation leadership proactively builds emotional connections with their followers,
inspiring them to work more, and transforming the workplace are all characteristics of
transformational leaders (Paudel, 2020). This style of leadership is particularly effective in
Small and Medium Enterprises (SMEs) where employees may have a greater need for
guidance, support, and inspiration. Transactional leadership is seen as a crucial metric for
assessing business performance. It emphasizes upholding the status quo in order to boost
business income ((Bass, 1985), Ferenita, & Nugraha, & Sukoco, 2020). Transformational
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leaders focus on developing their employees, helping them to grow and develop their skills
and abilities.
Leadership is built over the foundational stone of followers ((Wilson, 2020), Thapa, &
Parimoo, 2022). Leadership style is an essential factor that influences the behaviour and
performance of employees, which can ultimately impact the organization's performance. The
most important element influencing employees' attitudes, actions, and organizational
commitment is leadership style ((Mishra, 2019), Lama, & Pokharel, 2019). Therefore,
understanding the relationship between leadership style and organization performance in
SMEs in Nepal is crucial for the success and sustainability of these businesses. The
effectiveness of a leader is crucial to an organization's success or failure (Tourish, 2014). In
cases where the company encounters a number of new difficulties and challenges, effective
leadership can help to improve organizational performance (Ferenita, & Nugraha, & Sukoco,
2020).
Several studies have explored the relationship between leadership style and organization
performance in various contexts. The widely used leadership paradigm has also drawn a lot of

scholars and practitioners. According to Burns (1978), leadership may be divided into two
categories: transformational leadership and transactional leadership. Many studies have
already
been done to examine their direct impacts on the innovation and performance of SMEs
(Ferenita, & Nugraha, & Sukoco, 2020).
Modern leadership literature emphasizes the three main leadership philosophies of
transformational, transactional, and laissez-faire (non-leading) leadership ((Bass, 2008),
Paudel, 2020). Transformational, transactional, and laissez-faire are three different leadership
styles, each with its own strengths and weaknesses. Transformational leadership is effective
in motivating and inspiring followers to achieve higher levels of performance, Proactive
transformational leaders build emotional connections with their followers, motivate them to
do extra effort, and alter the climate of the business (Paudel, 2020). Transactional leadership
is effective in achieving short-term goals and maintaining discipline. Transactional leaders
are reactive and prioritize their followers' material ties (Bass, 2008), Paudel, 2020). Laissez-
faire leadership can be effective in situations where followers are highly skilled and
motivated, but it can be problematic in other situations. Laissez faire leaders are passive by
nature, avoid making decisions, delay taking steps, avoid being present when it is necessary,
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feel at ease with any ongoing activity in the organization, and let others to handle things as
they see fit ((Bass, 2008), Paudel, 2020).
Concept of Business Performance

Business performance is especially critical for Small and Medium Enterprises (SMEs), which
often operate with limited resources and face unique challenges in achieving growth and
sustainability. Business performance refers to an organization's capacity to meet objectives
including producing high-quality goods, gaining market share, and achieving superior
financial outcomes, making a high profit, and remaining in business over time (Koontz &
Donnell, 1993). According to Covin and Slevin (1991), the two main aspects of corporate
success are profitability and expansion (Paudel, 2020).
In SMEs, effective business performance can be measured by various metrics, including
financial performance, customer satisfaction, employee engagement, and innovation.
Wiklund and Shepherd (2005) also argued that performance measures should include growth
as the Small and medium-sized enterprises (SMEs) may be reluctant to provide actual
financial performance figures as it does not legally require them to publicize it (Paudel,
2020). Financial performance is a key measure of business performance for Small and
medium-sized enterprises (SMEs), as they often have limited resources and must operate
efficiently to remain competitive. Small and medium-sized enterprises (SMEs) should aim to
generate sufficient revenue and profits to cover their expenses and reinvest in the business to
drive future growth. Factors that determine Leadership Styles in SMEs Management
Being a sensitive and dynamic environment with unpredictably quick oscillations, Small and
medium-sized enterprises (SMEs) management leadership calls for focus and an open mind.
The most appropriate and successful leadership style or mix of styles for Small and
mediumsized enterprises (SMEs) in various situational scenarios should thus be determined
by taking into account a number of considerations (Hossin, & Azam, & Hossain, 2023).
There are several factors that can determine the leadership styles used in small and medium-
sized enterprises (SMEs) management. Although some of these are exterior, others are
internal; some are physical, some are context-sensitive; and so forth. As a result, scholars are
always working to pinpoint the variables in each circumstance that have an impact on a
leader's specific leadership style in Small and medium-sized enterprises (SMEs) management
((Patel, 2018; Soomro et al., 2018), Hossin, & Azam, & Hossain, 2023). These factor
includes: Organizational culture, Business goals and objectives, Employee characteristics,
Business environment, Personal preferences and values etc. In their study, Patel (2018) and
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Aghahowa (2021), the researchers found that a number of important variables, such as
personality, belief systems, company culture, employee diversity, personality traits, level of
control, organizational structure, and experience, can have a big impact on the leadership
philosophies that Small and medium-sized enterprises (SMEs') owners or managers adopt
within their organizations. The characteristics that affect Small and medium-sized enterprises
(SMEs) leadership were also underlined in a research by Othman et al. (2012), who
hypothesized that these are similar to those found in large company organizations but in
smaller doses. Paudel (2020) states there are several environmental and other elements that
affect leadership, entrepreneurial orientation, as well as the performance and sustainability of
SMEs. By examining the relationship between leadership and performance, the expansion
may be made by including environmental dynamism and other internal and external
situational elements as moderating variables. They essentially discovered several social
demographic factors, along with leadership qualities like gender, age, and race that can have a
big influence on the leadership styles that Small and medium-sized enterprises (SMEs)
owners or managers choose (Hossin, & Azam, & Hossain, 2023). The personal preferences
and values of the leader can also influence the leadership style. Some leaders may prefer to be
more handson and directive, while others may prefer to delegate and empower their
employees. Enterprise characteristics include business sectors, enterprise development phases
and sizes, company interrelationships and linkages, and job features. Leader characteristics
include leader's personalities, managerial capacity and level, emotional quotient, past jobs,
and previous superiors. Employee characteristics include employee personalities and age,
employee competencies and working experience, and employee attitudes. Additional
environmental factors include macro factors, micro factors, and intangible factors. The
aforementioned deciding variables have a considerable influence on assessing the
appropriateness of various leadership philosophies in the management of small and medium-
sized enterprises (SMEs) (Bojadziev et al., 2019; Le & Nham, 2022). So, before selecting a
leadership style to use in Small and medium-sized enterprises (SMEs) management, it is
important to thoroughly analyse all relevant elements (Hossin, & Azam, & Hossain, 2023).

2.2 Empirical Review

outcomes. The authors suggest that Nepali commercial banks should adopt transformational
leadership style to increase employee commitment and enhance employee outcomes.

Ferenita, & Nugraha, & Sukoco, (2020) showed that transactional leadership and
organizational success have just a tenuous connection. This study aids in identifying the
moderating impact of emotional intelligence, which may adversely affect organizational
performance as a whole. Managers are reported to be more adaptable to organizational and
transactional change within organizations. According to this study, employing and training
managers and employees with a high level of self-management can improve financial
performance. Our study's findings imply that Transactional Leadership style has a greater
detrimental effect on organizational performance, with Emotional Intelligence playing a
minor moderating influence. Specifically, a transactional leadership style has a negative
effect on stakeholder and internal processes as well as financial results, but a favourable
effect on learning and growth of organizational performance.
Hossin, & Azam, & Hossain (2023) concluded that effective leadership is crucial for
enhancing the success of small and medium-sized companies (SME) in both developed and
developing nations. However because they don't know which leadership style is best, many
SME leaders struggle with issues relating to leadership style. As a result, this study tried to
analyse different leadership philosophies linked to SME performance as well as factors that
might mediate or regulate in-betweens.
Alifah, & Sukmawati (2021) has studied the leadership styles and their impact on the
performance of small and medium-sized enterprises (SMEs). The authors identify and discuss
several leadership styles, including transformational, transactional, charismatic, participative,
and servant leadership. They examine the characteristics of each style and their potential
effectiveness in improving SMEs performance. The article highlights the importance of
selecting a leadership style that aligns with the organization's culture and goals. The authors
note that transformational leadership may be particularly effective in SMEs, as it can help to
foster a culture of innovation and improve employee motivation and commitment.
Thapa, & Parimo (2022) examined how transactional leadership (TL) affects organizational
performance while using emotional intelligence as a moderating factor (EI). Higher levels of
performance can be attained not only through the accomplishment of predetermined goals
and objectives but also via emotional development.
Paudel, (2020) on his study found that both transactional and transformational leadership
shown a considerable favourable impact on corporate [Link] and medium-sized
 11

enterprises (SMEs) are a vital part of the economy, and their performance is essential for
economic growth. The leadership style adopted by the Small and medium-sized enterprises
(SMEs) has a significant impact on their business performance.
Research has shown that different leadership styles have different effects on business
performance in SMEs. For example, transformational leadership has been found to have a
positive effect on business performance in Small and medium-sized enterprises (SMEs).
Transformational leaders inspire their team members to work towards a common goal, which
leads to increased job satisfaction, motivation, and creativity. This, in turn, can lead to higher
levels of innovation, productivity, and profitability in Small and medium-sized enterprises
(SMEs). Nepali Small and medium-sized enterprises (SMEs) need leaders who are willing to
invest in their own development and acquire the skills and knowledge necessary to effectively
manage their business. Since it offers a comprehensive strategy for cheeringly managing the
affairs of Small and medium-sized enterprises (SMEs), the contributors to this piece contend
that employing correct leadership styles in Small and medium-sized enterprises (SMEs)
management has immediate and substantial advantages (Hossin, & Azam, & Hossain, 2023).
They also need leaders who prioritize employee satisfaction and motivation and are willing to
embrace change and innovation to adapt to the ever-changing business landscape. The results
of this study will also be very significant to the owners of Small and medium-sized
enterprises (SMEs), educators, and legislators who may be interested in understanding and
putting those results into practice (Paudel, 2020). Different leadership styles work best in
different situations. A good leader should be able to adapt their leadership style to the
situation at hand and their team members' needs. The most effective leaders are those who
can balance their leadership style to achieve the best results for their team and organization.
This study also adds to previous research in the management literature and deepens our
understanding of leadership practice and individual leadership preferences in the management
of Small and medium-sized enterprises (SMEs) (Hossin, & Azam, & Hossain, 2023).
Transformational-Transactional Leadership & Small and medium-sized enterprises

(SMEs) Performance

Both transformational and transactional leadership can have a significant impact on the
performance of Small and Medium Enterprises (SMEs). Even if they exhibited opposing
characteristics, such as their impact on Small and medium-sized enterprises (SMEs')
performance, transformational and transactional leadership are intertwined and difficult to
disentangle ((Feranita et al., 2020; Paudel, 2020; şcan et al., 2014), Alifah, & Sukmawati,
 12

2021). Transactional leadership can be effective in achieving short-term goals and ensuring
that tasks are completed efficiently. Also, multiple research discovered that Small and
mediumsized enterprises (SMEs) performance is enhanced when both transformational and
transactional leadership are used (Alifah, & Sukmawati, 2021). The study also found that
transformational leadership had a stronger impact on Small and medium-sized enterprises
(SMEs) performance than transactional leadership. However, it may not be as effective in
promoting long-term growth and sustainability. As this was going on, several studies looked
at how transformational leadership affected the performance of Small and medium-sized
enterprises (SMEs) through mediating factors. According to López-Lemus et al. (2016),
transformational leaders with the ability to use integrated negotiating methods during the
business transaction process have an impact on Small and medium-sized enterprises (SMEs)
success (Alifah, & Sukmawati, 2021). In contrast, transformational leadership can help to
create a culture of innovation and continuous improvement, which can lead to long-term
business success. The study found that transformational leadership had a direct and positive
impact on Small and medium-sized enterprises (SMEs) performance, and that this impact was
mediated by employee job satisfaction and organizational commitment.
In the link between transformational leadership and Small and medium-sized enterprises

(SMEs) success, organizational learning is another crucial concept. With the use of the
organizational learning process, which included learning commitment, sharing objectives,
and openness, transformational and transactional leadership concurrently influenced SME
performance's efficacy from the financial and growth sides ((Tong, 2020), (Alifah, &
Sukmawati, 2021). Overall, the research suggests that both transformational and
transactional leadership can have a positive impact on SMEs performance. However,
transformational leadership may be more effective in promoting long-term growth and
sustainability, while transactional leadership may be more effective in achieving short-term
goals and ensuring that tasks are completed efficiently. Ultimately, the most effective
leadership style for SMEs will depend on the specific context and goals of the organization.
Leadership Style and Business Performance
The relationship between leadership style and business performance in SMEs (Small and
Medium Enterprises) has been widely studied in the academic and business community.
There is evidence that effective leadership can positively impact the performance of SMEs,
and that different leadership styles can have varying effects on business outcomes. There
have been numerous studies conducted to examine the relationship between leadership styles
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and business performance in small and medium-sized enterprises (SMEs). In particular, the
two primary leadership styles that have been investigated in this context are transformational
and transactional leadership. Organizational performance and leadership effectiveness are
positively impacted by both transactional and transformational leadership styles (Bass, 2008).
Yang (2008) found that both leadership philosophies were significantly positively connected
with company success after researching 406 SMEs (Paudel, 2020). Studies have found that
both transformational and transactional leadership styles can have a positive impact on Small
and medium-sized enterprises (SMEs') business performance. Both leadership philosophies
were shown to be favourably correlated with leadership effectiveness and results in a study
from a Nepali environment ((Shrestha, 2012), Paudel, 2020). Transformational leadership has
been linked to higher levels of employee satisfaction and commitment, as well as increased
innovation and productivity, which can ultimately lead to improved financial performance.
On the other hand, transactional leadership has been shown to be effective in improving
operational efficiency, reducing costs, and increasing sales revenue. When comparing the
two, transactional leadership has a weaker correlation with greater performance and
productivity than does transformational leadership (Bass, 1985). Yang (2008) demonstrated
that various leadership philosophies may have an impact on corporate success, emphasizing
the correlation between performance and transformational leadership (Paudel, 2020). While
transformational leadership may be more effective in promoting innovation and creativity,
transactional leadership may be more suitable for improving operational efficiency and
achieving short-term goals. Leadership style also has a direct bearing on corporate success in
developing nations, with transformational leadership having a bigger effect than transactional
leadership (Arham, 2012). Transformative leadership was found to be a stronger predictor of
leader and work-unit performance in Nepal than transactional leadership (Shrestha, 2012). It
is suggested that: Transformational leadership has a considerable and favourable influence on
corporate success in accordance with these findings. Business performance is significantly
and favourably impacted by transactional leadership. Compared to transactional leadership,
transformational leadership has a bigger and better impact on corporate success (Paudel,
2020).
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3. Conclusion

The leadership style adopted by Small and medium-sized enterprises (SMEs) has a significant
impact on their business performance. Over time, several theoretical, empirical, and practical
research have demonstrated the necessity for leadership and leadership styles in the
administration of diverse organizations. This develops into a reflective capacity to connect
the need to the interests of a larger community, especially in commercial groups like Small
and medium-sized enterprises (SMEs). The owner of a Small and medium-sized enterprises
(SMEs) must make significant decisions on a daily basis as a leader, which calls for a variety
of leadership philosophies. In order to close the gap between leadership styles and practices,
Small and medium-sized enterprises (SMEs) owners and managers need have a thorough
understanding of various leadership styles, including their characteristics and advantages.
Consequently, SMEs owners and managers should be well familiar with the many leadership
styles, their characteristics, advantages, and benefits style is the most practical leadership
style for Nepali (Hossin, & Azam, & Hossain, 2023). The study concludes that
transformational leadership style is the most effective leadership style for Nepali Small and
medium-sized enterprises (SMEs) to achieve better business performance. Transformational
leaders are more likely to inspire and motivate their employees, which leads to higher job
satisfaction, commitment, and performance. The study recommends that Small and medium-
sized enterprises (SMEs) in Nepal should focus on developing and implementing
transformational leadership practices to improve their business performance. In general, the
most effective leadership style for a Small and medium-sized enterprises (SMEs) will depend
 15

on various factors, such as the nature of the business, the size of the team, and the
organizational culture. It is essential for leaders to be adaptable and able to adjust their
leadership style based on the situation and the needs of their team. Ultimately, the goal of
effective leadership in SMEs is to create a positive work environment that fosters innovation,
creativity, and collaboration, leading to improved business performance. This article also
came to the conclusion that if the right leadership style could be identified and used in SMEs
management, it would improve performance and make it easier to accomplish goals. To
conclude, the effective leadership should be implement according to nature of business. In
fact, every SME's management should use suitable leadership styles in their workplace to
foster visionary management and improve the firm's performance.

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