The Effect of Transformational and Transactional Leadership Behaviors on Innovation and Work Engagement in the Hungarian Fintech Sector

Abstract

Leadership behaviors play a vital role in driving organizational performance. As catalysts for transformation, effective leaders can inspire teams, foster innovation, and ensure an organization's viability in an increasingly competitive marketplace. However, in the context of the dynamic Fintech sector, particularly in regions such as Hungary and wider Eastern Europe, there remains an insufficient depth of exploration. Despite the sector's significant expansion and impact, comprehensive studies examining the influence of these leadership styles on innovation and employee engagement within these digital-centric environments are rather sparse. This suggests an exigent need for more focused and dedicated research in this field. This research aims to examine the impact of transformational and transactional leadership styles on innovation and the degree of work engagement in Budapest's Fintech sector. The study further explores the contrasting perceptions of employees about Transformational and Transactional leadership behaviors. The research design is quantitative, employing a questionnaire to collect primary data, which was processed using the Statistical Package for Social Sciences (SPSS v26). The target population sample for this investigation comprises 300 employees from 146 Fintech firms. The study employed a cross-sectional research structure to gather data from both employees and middle managers within the Fintech sector in Budapest, Hungary. An online survey tool was used, encompassing the Multifactor Leadership Questionnaire (MLQ-5X), Innovation Index (II), and Utrecht Work Engagement Scale (UWES-9). Regression and moderation analyses were deployed to interpret the data. The findings showed significant positive impact by transformational and transactional leadership on innovation and work engagement. Further, the study found significant coefficients associated with each of these relationships, indicating that an increase in the perception of either leadership style would result in a corresponding increase in organizational innovation and work engagement. In addition, the moderation analysis revealed that transformational leadership plays a moderating role in the relationship between innovation and work engagement within the professional setting. These findings offer significant insights for the Fintech industry in Hungary, providing evidence that transformational and transactional leadership can foster innovation and increase work engagement among employees.