Purpose The purpose of this study is to investigate how transformational leadership influences firm performance through the sequential mediating roles of dynamic capabilities and frugal innovation. It also examines the moderating effects of entrepreneurial bricolage and environmental turbulence on these relationships. Design/methodology/approach Drawing on data from 412 Vietnamese small and medium-sized enterprises, this study applies a two-stage partial least squares structural equation modeling approach to test the proposed moderated serial mediation model. Findings The results reveal that transformational leadership significantly enhances dynamic capabilities, which in turn promote frugal innovation and ultimately improve firm performance. Dynamic capabilities partially mediate the relationship between transformational leadership and firm performance, while frugal innovation partially mediates the link between dynamic capabilities and performance. Moreover, entrepreneurial bricolage strengthens the positive effect of transformational leadership on frugal innovation and environmental turbulence amplifies the impact of dynamic capabilities on firm performance. Research limitations/implications The study offers practical guidance for small and medium-sized enterprises operating in dynamic and resource-constrained environments by highlighting the roles of transformational leadership, dynamic capabilities and frugal innovation as critical drivers of adaptability and performance. It suggests that managers should foster leadership practices, encourage resource recombination and build capability portfolios to enhance strategic agility and innovation in turbulent markets. Originality/value This research extends the literature by introducing and empirically testing a novel moderated serial mediation model, linking transformational leadership to performance outcomes. It is among the first studies to examine the joint moderating effects of entrepreneurial bricolage and environmental turbulence, offering new insights into how leadership and organizational capabilities interact to drive resource-efficient innovation and performance in emerging markets.
Phuong et al. (Fri,) studied this question.