The Role of Innovation in Mediating The Effect of Human Capital and Leadership Style on Msme Performance

Abstract

Purpose: This study aims to examine the influence of human capital and leadership style on MSME performance with innovation as a mediating variable among MSMEs in East Nusa Tenggara, Indonesia.

Method: This study employs a quantitative approach with an explanatory research design. The sample consists of 175 MSME owners selected using purposive sampling techniques. Data were collected through a structured questionnaire based on a five-point Likert scale. Data analysis was conducted using Partial Least Squares Structural Equation Modeling (PLS-SEM), supported by validity, reliability, and hypothesis testing

Findings: The results indicate that human capital and leadership style have positive and significant effects on innovation and MSME performance. Innovation also positively affects MSME performance and significantly mediates the relationship between human capital, leadership style, and MSME performance. Among the examined variables, leadership style shows the strongest influence on innovation, while innovation plays an important role in improving organizational performance

Novelty: This study contributes to the literature by integrating human capital, leadership style, innovation, and MSME performance into a single empirical framework in the context of MSMEs in East Nusa Tenggara. The study also highlights the strategic role of innovation as a mediating mechanism that strengthens the influence of organizational resources and leadership on business performance