The influence of transformational and transactional leadership on employee retention: mediating role of employee engagement

Purpose - The study aims to investigate the relationship between transformational, transactional leadership and employee retention with the mediating effect of employee engagement. Design/methodology/approach - Using judgemental sampling, data were collected from 650 employees serving at different levels in the pharmaceutical industry of Bangladesh. Structural equation modeling was employed to test the hypothesized relationships using AMOS. Findings - The study found that transformational and transactional leadership significantly impact employee retention. The direct effects of transformational leadership (TFL) on employee engagement were found to be significant, while transactional leadership (TSL) has no significant direct influence on employee engagement. The output of the mediation analysis revealed that employee engagement significantly mediates the relationship between TFL and employee retention, whereas it showed an insignificant relationship between TSL and employee retention. Practical implications - Based on the findings and the literature support, it can be postulated that an appropriate leadership style, especially TFL, that drives employee engagement can influence employees to stay with the organization longer. The study recommends that managers and leaders comprehend the importance of leadership and its appropriateness to retain valued employees by ensuring high workplace engagement. Originality/value - The study would provide a unique insight into TFL and TSL practices and their impact on the pharmaceutical industry’s employee retention. This study also extends the research on employee engagement as a mediator between TFL and TSL and employee retention.