The Effect of Leadership Practices on Organizational Performance: Evidence from The Ethiopian Banking Industry

Abstract

Leadership has become a strategic determinant of organizational success, yet in developing economies such as Ethiopia, where the banking industry faces intensifying competition, digital transformation, low employee engagement, and persistent inefficiency, empirical evidence on which leadership practices most influence performance remains limited, and prior studies typically isolate a single leadership style. This study aimed to determine the extent to which four managerially controllable practices, namely communication, leadership support, employee participation, and performance feedback, predict organizational performance in the Ethiopian banking industry, modelling them simultaneously as an integrated set of predictors. A quantitative approach was employed, using a structured five-point Likert questionnaire distributed to employees of ten leading commercial banks. Of the 230 questionnaires distributed, 190 valid responses (a response rate of 82.6%) were analyzed in SPSS version 27 using descriptive statistics, Pearson correlation, and multiple regression. All four variables had positive and statistically significant effects, jointly explaining 58.5% of the variance in performance (adjusted R² = 0.585; F = 67.655, p < 0.001). Communication exerted the strongest influence, followed by leadership support, employee participation, and performance feedback. The findings extend transformational leadership theory and the resource-based view, offering banks and policymakers an evidence-based ordering of practices for prioritising organizational-development investments.