Employee Performance and Mental Well-Being: The Mitigating Effects of Transformational Leadership During Crisis

The positive role of transformational leadership for productivity and mental well-being has long been established. Transformational leadership behavior may be particularly suited to navigate times of crisis that are characterized by high levels of complexity and uncertainty. We exploit quasi-random assignment of employees to managers and study the role of frontline managers’ leadership styles on employees’ performance, work style, and mental well-being in times of crisis. Using longitudinal administrative data and panel survey data from before and during the COVID-19 pandemic, we find that the benefits of different leadership styles depend on the environment: Employees of more transactional managers outperform those of more transformational leaders before the onset of the pandemic. During the pandemic, however, more transformational managers lead employees to better performance and mental well-being. We discuss potential explanations and implications. This paper was accepted by Marie Claire Villeval, Behavioral Economics and Decision Analysis. Funding: K. Czura and F. Englmaier acknowledge funding from Collaborative Research Center Transregio 190 [Project 280092119]. H. Ho acknowledges funding through the International Doctoral Program “Evidence-Based Economics” of the Elite Network of Bavaria and from Transregio 266 [Project 403041268]. L. Spantig acknowledges funding from Global Challenges Research Fund@Essex. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.03285 .