Objective - This study aims to investigate the extent to which transformational leadership could enhance financial and social performance of village-owned enterprises through organizational capabilities.

Methodology/Technique - This study conducted a survey involving village-owned enterprises in Siak Regency, Indonesia. 121 questionnaires were distributed directly to the directors of village-owned enterprises and 89 completed and usable responses were received. Data was analyzed using WarpPLS 5.0 to determine that transformational leadership, directly and indirectly through organizational capabilities can enhance financial and social performance of village-owned enterprises.

Finding - This study demonstrates that transformational leadership has a positive direct effect on organizational performance. Transformational leadership also has a positive effect on organizational performance through organizational capabilities. This study proves that organizational capabilities act as a partial mediator on the relationship between transformational leadership and organizational performance. Novelty - The results of this study demonstrate that transformational leaders are important in improving the performance of village owned enterprises. Therefore, this study suggests that village consultative bodies need to consider the behavioural characteristics of transformational leadership in recruiting village-owned enterprise directors.

Type of Paper - Empirical.

Keywords: Transformational Leadership; Organizational Capabilities; Financial Performance; Social Performance; Village-owned Enterprises.

JEL Classification: L21, L25.

URI: http://gatrenterprise.com/GATRJournals/GJBSSR/vol7.4_3.html

DOI: https://doi.org/10.35609/gjbssr.2019.7.4(3)

Pages 224 – 238