1. Introduction
Management and organizational studies have identified innovation as one of the critical success factors and sources of competitive advantage in current business environments [1]. Innovation enables firms to respond to emerging markets, improve organizational performance, and sustain long-term competitiveness in business. At the individual level, employee innovative behavior (EIB) incorporates generating new ideas, advocating for change, and implementing novel solutions in products or services, which are key to sustaining organizational innovation [2]. Among the many organizational factors influencing innovative work behavior, leadership stands out as one of the most impactful, as revealed by employees [3]. However, each leadership style’s success depends on the unique organizational and cultural features in which it operates as no single model works for every situation [4]. Research on leadership approaches and their effects on EIB across various settings is imperative to supply organizations with concrete leadership alignment methods for innovation cultivation.
A growing body of research has begun to examine how leadership styles can facilitate employee innovation across diverse cultural and organizational environments. For instance, research in Western settings reveals that participative leadership encourages individual autonomy and innovation, enhancing individualism and self-organization [5]. Conversely, in Asian organizations, inclusive leadership styles rooted in collectivistic cultures enhance collaboration and collective benefits [6]. Such cultural differences call for further validation across different cultural organizations. Most research in industries in developing countries has focused on transformational and transactional leadership, often overlooking the potential of democratic leadership. Transformational leadership drives innovation through vision and inspiration [7], and transactional leadership emphasizes structured goals and rewards [8]. However, studies reveal that democratic leadership can continue to be very effective in collectivist societies when aligned with shared responsibility, solidarity, and gratitude for leadership. For example, Zhang et al. [9] revealed that empowering leadership significantly boosts employee creativity. In the same vein, Lythreatis et al. [10] demonstrated that participative leadership styles promote innovation by establishing trust-based environments. This balance makes democratic leadership particularly effective in environments that require both collective creativity and individual initiative, such as Pakistan’s textile industry.
The textile industry of Pakistan is the largest industry in Pakistan, contributing to almost 8.5% of the GDP and it accounts for 60% of the country’s export revenue [11]. However, current and potential sectors face several challenges which include increased global competition, increased cost to produce products, and limited opportunities for developing value-added innovations. Empirical research shows that democratic leadership methods that create open communication together with psychological safety enable the mitigation of these challenges through employee participation and creative thinking [12,13]. In high-power-distance cultures like that in Pakistan, it remains critical to build and promote psychological safety to unlock employee creativity to spur innovation [14]. The fear of negative consequences from higher-ranking staff discourages employees from sharing their innovative ideas [15]. The psychological safety and creative potential of employees become crucial factors in unlocking innovation [16,17]. Psychological safety is defined as a shared belief that a work environment is safe for interpersonal risk-taking [18], whereas creative potential is the ability of an individual to produce innovative and effective concepts within a particular context. Creative potential involves challenging current knowledge and methods to innovate and improve them.
Despite these findings, there is a dearth of studies that have explored the role of democratic leadership in this particular environment culture [3]. Past research has mainly focused on other leadership styles to develop innovative working environments while ignoring the democratic leadership style [19,20]. The democratic leadership style is important as it relies on inclusiveness, participation, and open communication [21], and it promotes the cultivation of innovation [22]. Moreover, democratic leaders both seek employee involvement in organizational decisions and create environments where staff members feel pride in generating their best implementation ideas [23,24]. Somehow, psychological safety and creative potential are considered among the important antecedents of innovation, but their roles as mediators in the democratic leadership–innovation relationship are still unexamined in different cultural organizations. A research gap emerges specifically in Pakistani textile organizations with collectivistic culture where autocratic leadership prevails and employee involvement in innovation practices is minimal [25]. Henceforth, this study identified employee participation under democratic leadership as a method for boosting innovative conduct in collective culture organizations. Research on factors driving sustainable innovation and understanding their interconnection is crucial for developing a framework for implementing such innovation for business development.
Further, the significance of establishing the connection between democratic leadership and employee innovative behavior is both theoretical and pragmatic. This study utilizes Self-Determination Theory (SDT) [26], which demonstrates that satisfying employees’ intrinsic needs for autonomy and competence and relatedness leads to better motivation and creativity. Additionally, it draws from Social Cognitive Theory (SCT) [27] that highlights how observational learning, self-efficacy, and environmental factors affect innovative behavior. This study is underpinned by these theories to understand how democratic leadership increases the level of intrinsic motivation and creativity to develop sustainable innovative environment in business. This research combines theoretical value with empirical insights to improve leadership effectiveness in innovative-focused businesses within Pakistan’s textile sector.
In fact, this study offers practical insights for managers and policymakers in the textile sector of Pakistan regarding key tactics for cultivating a productive culture where more people can feel involved and encouraged to innovate. This research contributes to the growing body of knowledge on democratic leadership and innovation in several ways: First, we combine democratic leadership theory with psychological safety and creative potential to develop a model of employee innovative behavior. Second, we build on Social Cognitive Theory by exploring the mediating roles of psychological safety and creative potential in the association between democratic leadership and EIB. Thirdly, as this investigation is set in the Pakistani textile industry, this study fills a significant leadership and innovation research gap in the context of distinct organization cultural environments.
Hence, the primary objective of this study is to determine democratic leadership interactions to enhance EIB through the mediating roles of psychological safety and creative potential in the particular culture of the textile industry sector in Pakistan. This study seeks to answer the following research questions: How does democratic leadership shape employee innovative behavior in the collectivistic cultures of the considered organizations? And how do psychological safety and creative potential play roles as mediators in the relationship between democratic leadership and employee innovative behavior in fostering sustainable innovation?
2. Literature Review and Hypothesis Development
2.1. Employee Innovative Behavior
Employee innovative behavior (EIB) is defined as the creation, suggestion, support, and adoption of new ideas at the workplace level [2]. It can be defined as providing new ways of working, proposing new products, or implementing changes within an organization that promote innovation. EIB has an important role in organizational success especially in industries that are experiencing intense competition such as the textile industry, where today, there is a need for organizations to consistently come up with innovations. Innovation theory suggests that employee creativity is influenced by individual traits and managerial support, emphasizing the significance of a secure, psychologically safe work environment [28]. Within this framework, democratic leadership is seen as a catalyst for innovation by fostering inclusivity, encouraging idea sharing, and reducing hierarchical constraints. This paper posits that the perception of a secure environment and the belief in creativity are two key undertones that facilitate creative behavior among employees. Democratic leadership shapes EIB by fostering psychological safety and unleashing employees’ creativity in terms of EIB.
2.2. Democratic Leadership and Employee Innovative Behavior
Democratic leadership has been defined as a style of leadership that involves engaging employees in decision-making processes, sharing management responsibilities, and encouraging open communication. This leadership style is effective in nurturing innovation because it helps employees develop and encourages idea sharing and teamwork [21]. Employee innovative behavior involves the creation, suggestion, and implementation of new ideas, which are most likely to occur in organizations that are employee-friendly and motivating [2]. Previous research strongly supports the connection between democratic leadership styles and employee innovation behavior. For example, Lili and Rafiq [29] showed that participative leadership improves creativity and cooperation and leads to innovative behaviors. Likewise, researchers emphasize the role of democratic leadership in fostering innovation culture by fostering active employee participation and decision-making processes [30]. In addition, democratic leadership increases employees’ intrinsic motivation, leading to higher innovation levels [31].
This democratic model enables workplace staff to share creative ideas and guidance within their different organizations [32]. Employee participation in decision-making serves as the primary aspect that boosts creativity and motivation, supporting democratic leadership and innovation [33]. The recent literature also affirms the correlation between democratic leadership and innovation. For example, Bashiru [34] discovered that democratic leadership improves organizational creativity and innovation through the delegation of responsibilities among employees. Fatima et al. [35] discovered that participative leadership has a strong positive relationship with the creativity of employees; similarly, another study proved that it improves both individual and team innovation [36]. A study conducted in a non-Western manufacturing industry found that participatory leadership increased innovation and creativity among employees [33]. This finding emphasizes the widespread attraction of democratic leadership. Alsalman et al. [37] recognized in a healthcare setting that democratic leadership enhances employees’ innovation self-employment, particularly in a collective context. These findings support the proposition that democratic leadership allows employees the freedom and encouragement to generate new ideas and implement into action.
Theoretical perspectives such as Self-Determination Theory (SDT) [38] and Social Cognitive Theory (SCT) [27] help explain how democratic leadership influences innovation. SDT posits that leadership styles that promote autonomy and competence enhance intrinsic motivation, which, in turn, facilitates innovative behavior [39]. Additionally, Social Cognitive Theory (SCT) emphasizes the role of self-efficacy in innovation. Kulys [40] found that democratic leadership boosts creative self-efficacy, which mediates the relationship between leadership style and EIB.
The majority of research studies conducted within Western nations leave an information gap regarding democratic leadership effects on contexts like that of Pakistan. The concept of democratic leadership introduces beneficial change management for innovation to Pakistan’s bureaucratic system with its central power structure. When engaging employees in organizational decision-making processes and recognizing their contributions, it is possible to eliminate sectionalism in the workplace. This shift in leadership culture not only boosts employee enthusiasm but also fosters more creativity and more inventive behavior. Therefore, democratic leadership can foster a creative organizational culture, especially in environments with strong power centralization. Thus, there is empirical evidence for the proposition that democratic leadership has a positive effect on employee innovative behavior. This leads to the following hypothesis:
Democratic leadership positively influences employee innovative behavior in SMEs.
2.3. Psychological Safety as a Mechanism for Employee Innovative Behavior and as a Mediator Between DL and EIB
The concept of psychological safety reflects how much people feel comfortable expressing themselves in front of others while trying new approaches and making mistakes without facing negative consequences in the workplace [41]. Employee psychological safety exists when employees can freely express themselves and take calculated risks within organizations without the fear of embarrassment, rejection, or punishment [42]. Psychological safety in workplaces enables employees to undertake innovative risks which results in higher engagement in problem-solving tasks and creative projects [18,43]. It is important for people in leadership roles to provide such a psychologically safe environment in an organization. Thus, the democratic leadership style creates spaces for employees to innovate by establishing risk-free conditions for innovative behavior [44]. Research confirms that psychological safety significantly contributes to enhancing innovation, especially when employees receive positive messages from their organizational environment [45].
A workplace environment supporting psychological safety improves interpersonal trust along with leader effectiveness [46] and knowledge-sharing practices between employees [47]. Mentally secure workplaces allow team members to create creative solutions that boost motivation and innovation without the fear of failure. Managers who apply the democratic leadership style encourage employees to contribute their opinions and feelings, knowing they will be protected from punishment [48]. The psychological safety that executives provide to employees is crucial for the enhancement of their psychological well-being, as well as the enhancement of their creative self-competence [49]. Thus, when workers have a strong sense of psychological safety at work, they are more likely to believe in their own abilities to generate creative ideas and be proactive in coming up with new concepts [46].
Psychological safety promotes employee inventive behavior while also serving as an important mediator in the interaction between leadership and innovation. For example, one study revealed that psychological safety provided complete mediation between transformational leadership and creativity [44], while participative leadership followed a similar pattern in terms of the results [50]. The culturally diverse literature also substantiates the mediating function of psychological safety. Chen, Wadei, Bai, and Liu [50] Research confirmed that participative leadership in Chinese enterprises boosts employee creativity through its creation of safe psychological environments that promote innovation. Similar findings were affirmed in the South Korean context [51]. These studies indicate that psychological safety is a universal construct and is necessary for creativity in self- and teamwork environments. Empirical studies further confirm that psychological safety is a moderator of the leadership–innovation connection. For instance, research established that psychological safety acted as a moderator in the connection between ambidextrous human resource practices and employees’ creativity in knowledge-intensive organizations [52]. Similarly, Xu et al. [53] found that psychological safety enhanced the performance of an entrepreneurial team through diminishing fear and promoting communication. Thus, we assume that psychological safety has a positive moderating function in the relationship between leadership roles and innovative work behavior.
Hence, democratic leadership can foster psychological safety in high-power-distance cultures, promoting creativity and innovation. It builds trust, respect, and psychological backing, fostering a safe work environment where employees take risks and share knowledge. From these findings, we propose the following hypothesis:
Psychological safety mediates the relationship between democratic leadership and employee innovative behavior in SMEs.
2.4. Creative Potential as a Mechanism for Employee Innovative Behavior and as a Mediator Between DL and EIB
Employee innovative behavior stands as a critical organizational factor that helps in maintaining a competitive advantage for businesses that operate in fast-changing and unpredictable markets [54,55]. The innovative thinking processes of high-creativity employees help them solve problems by combining knowledge and exploring new possibilities, which creates adaptable solutions for organizations [56]. Creative potential serves as a fundamental predictor of innovative work behavior because it allows individuals to produce fresh, effective ideas [56,57].
The creative potential of an individual is defined as cognitive flexibility with innovative thought and effective problem-solving abilities and resistance to traditional norms [58,59]. Creative potential refers to the number of ideas one has that are unique, imaginative, and potentially beneficial in an organizational setting [60]. Creative potential includes divergent thinking, creativity, and participation in an organization’s problem-solving processes in order to spur creativity. Employees with creative potential consistently explore various opportunities to implement innovative solutions and explore new approaches for organizational growth. Research indicates that individuals with creative potential adapt better to dynamic workplaces, using intrinsic motivation and cognitive resources for problem-solving [61,62]. Employees with strong creative potential produce higher-innovation outcomes by redefining products, inventing novel work strategies, and experimenting with different work approaches [63,64].
Furthermore, employees with high creative potential actively seek learning opportunities to enhance their creative skills while developing innovative execution methods [65]. Learning-based programs help employees develop new knowledge while integrating diverse insights to solve creative problems at work, which strengthens the relationship between creative potential and innovative employee behavior [66]. Thus, employees with creative potential not only contribute to individual creativity but also inspire collective invention when they work within supportive environments that foster creativity.
While creative potential is an important driver of employee innovation, its expression is heavily impacted by leadership styles, particularly democratic leadership [67]. Democratic leadership helps in developing an environment that promotes employee participation through the safe execution of new ideas and taking calculated risks without fear. Self-Determination Theory (SDT) postulates that relatedness, competence, and autonomy are hypothesized to support the intrinsic regulation of behavior, which leads to creativity. Previous research analyzed various leadership styles, and democratic leadership has been characterized as the most effective style for developing employees’ creativity. Such leadership fosters discussion, decision-making involvement, and constructive feedback, all of which enable employees to unleash and harness their inherent creativity [68]. These leadership practices enhance corporate culture because they foster a high regard for and confidence in employees while enabling them to seek and find innovative ways of solving problems. Research proved that innovation efforts can be conducted effectively by employees who have high creative capital and are working under leaders who encourage collaboration, risk-taking, and creativity [69]. According to study [70], democratic leadership fosters conditions of support and involvement which in turn leads to creative potential behavior that fuels innovative actions.
Recent studies indicate creative potential functions as a connecting variable to link employee innovative conduct with democratic leadership. For example, leadership autonomy positively impacts employees’ creative capability by minimizing the risk of failure and inspiring imagination [69]. Similarly, Nabi et al. [71] showed that leaders who offer opportunities to be creative and try out new ideas increase employee innovativeness. Furthermore, empowering leadership improves employees’ creative capacity which in a way improves their creativity [72]. Similarly, one study reported that creative potential acts as a moderator between democratic leadership and innovative behavior [31]. These results also emphasize the importance of creative potential as a moderator between the level of leadership influence and innovation success.
Organizations need to establish environments that support creative potential development because it shapes employee innovative behavior through leadership interventions. The democratic leadership approach can serve as an innovation catalyst in Pakistan’s textile industry because it removes bureaucratic barriers that hinder creativity in high-power-distance hierarchical systems. The discussion above allows us to make the following hypothesis:
Creative potential mediates the relationship between democratic leadership and employee innovative behavior in SMEs.
3. Materials and Methods
This section explains the research design and how we tested the effects of democratic leadership on employee innovation through a conceptual framework that uses psychological safety and creative potential as mediating factors. This research employed quantitative methods to measure precise relationships between its key factors. This research involved a systematic approach, including a literature review, a pilot study to validate the survey design, data collection through self-reported surveys, and analysis using Structural Equation Modeling (SEM) with Smart PLS 4.1.0.8 to test the hypothesized relationships.
3.1. Conceptual Framework
The conceptual framework illustrates the hypothesized relationships between democratic leadership, psychological safety, creative potential, and employee innovative behavior. Democratic leadership is positioned as the independent variable, with psychological safety and creative potential acting as mediators in its influence on EIB. This framework is shown in Figure 1.
3.2. Research Design
The following systematic, sequential quantitative strategy was used to meet this study’s goals.
3.2.1. Sample and Procedures
This research was confined to the textile sector of Pakistan which is one of the key industries of Pakistan’s economy. As the textile industry is highly dependent on innovation being competitive, and involves a lot of employee involvement, it became another popular area of study in terms of analyzing the impact of democratic leadership on stimulating the innovative behavior of employees. The target population for this study was all employees working in SMEs in the textile industry of Pakistan including those in Lahore, Faisalabad, and Karachi. This sector was selected for its importance to the economy and because innovation is currently being focused on as a way to remain competitive. This way, the sample encompassed both managerial and non-managerial workers so that the situation regarding leadership and innovation at different organizational strata could be investigated comprehensively. In an effort to improve the generality of the results, a method known as stratified random sampling was used which ensures that the study sample is composed of employees from equal levels of the organizational structure and from various organizational departments. The sample size was estimated in accordance with Cochran’s formula, having set up a 95% confidence level and 5% error margin. Such methodological stringency helped to maximize the reliability and external validity of the results.
3.2.2. Data Collection
The data collection phase involved the distribution of 495 questionnaires, with 445 being returned, resulting in an 89.9% response rate. The final sample size was 389 respondents, with an effective response rate of 78.6%, as 56 questionnaires were excluded due to missing or incomplete information after a comprehensive screening. This high response rate improves the findings’ reliability and validity, indicating strong support for survey-based research in organizational contexts.
Data were collected by means of structured questionnaires administered both in face-to-face and online formats. The questionnaires were preceded by a cover letter in which the aim of this study, participants’ anonymity, and their consent were described. Participants were requested to rate the state of leadership, psychological safety, creative capacity, and innovative activity in the past year. A pilot test with 50 textile industry workers from Pakistan was used to assess the questionnaire’s clarity, reliability, and validity to ensure its comprehensiveness and credibility. Feedback from the pilot test led to minor adjustments in item phrasing and sequence. This process enhanced the survey’s precision and improved the feasibility of final data collection.
3.3. Measures
The constructs in this study were measured using well-validated scales adapted from previous research. A five-point Likert scale (1 = strongly disagree to 5 = strongly agree) was used for all items to ensure consistency and ease of response.
3.3.1. Democratic Leadership
Democratic leadership was assessed by adopting an [21] eight-item Gastil scale that tests whether leaders encourage decision-making input, open participation, and inclusion. The respondents provided their response in terms of agreement utilizing a Likert scale, where 1—strongly disagree and 5—strongly agree. The scale comprised statements such as “My leader lets others talk about what they want in the organization” and “In my team we make collective decisions,” which align with the democratic leadership system. In the present study, the scale showed internal consistency reliability with Cronbach’s alpha coefficient of 0.916, implying that the items captured the intended construct in the organizational environment well.
3.3.2. Psychological Safety
This study used a psychological safety scale which consists of seven questions by Edmondson [41] to determine the degree of perceived safety within workspace. The scale measures the level at which people can speak and act freely without facing an adverse outcome in an organization. The respondents were asked to react to items on a Likert scale with labels 1 = strongly disagree and 5 = strongly agree. Some of the assertive items are as follows: ‘‘This is safe to take a risk on this team” and ‘’Nobody in my team would intentionally behave in a way that sabotages my work.’’ In this study, the scale used had high reliability, with the Cronbach’s alpha coefficient being 0.843, which is an accurate measure of the reliability of the scale in an organizational setting, for the assessment of psychological safety.
3.3.3. Creative Potential
Creativity was assessed based on the Runco Ideational Behavior Scale (RIBS) [73] adapted for the workplace, and employees were asked about their ability to create ideas and find solutions. The scale focuses on the innate creativity of people, not on their confidence while employing it. To measure the perceptions of the respondents on the six items, they were asked to rate their agreement on a 5-point Likert scale with 1 indicating “strongly disagree” and 5 indicating “strongly agree”. Sample items included are “I frequently create creative ways of handling issues at the workplace” and “I am capable of out-of-the-box thinking and coming up with unique solutions”. The scale used in this study produced highly reliable and internally consistent results with a Cronbach’s alpha of 0.913, indicating the reliability of the scale for assessing creative potential.
3.3.4. Employee Innovative Behavior (EIB)
Employee innovative behavior (EIB) was measured using a nine-item questionnaire adapted from Janssen [2] which intends to measure the degree to which the employee is involved in the processes of idea generation, idea promotion, and the implementation of ideas. All items were measured on a 5-point Likert scale where 1 = strongly disagree, and 5 = strongly agree. Representative items included the following: “I proactively look for new technologies, ways or product concepts” and “I try to persuade other to adopt innovation solutions”. It was found that the scale has good internal consistency with a Cronbach’s alpha of 0.909 for the use of the scale in measuring innovative behavior in organizational environments.
3.4. Data Analysis
Data analysis in this study was conducted employing Structural Equation Modeling (SEM) and software called Smart PLS to test direct and indirect relationship hypotheses. Descriptive statistics, reliability and validity of the measures calculated and hypotheses tests conducted in the preliminary analysis. To examine the relationship between democratic leadership and employee innovative behavior, path coefficients were used. Bootstrap sampling was used to conduct mediation analysis on the indirect paths between psychological safety and creative potential in the relationship between democratic leadership and employee innovative behavior. In this study, R2 values, the SRMR, and direct path coefficients were used to evaluate the model’s goodness of fit.
4. Results
4.1. Descriptive Analysis
The demographic profile of 389 participants provides essential background data to understand how democratic leadership influences employee innovative behavior (EIB) in Pakistani textile SMEs. The workforce was equally split between genders with 56.04% male and 43.96% female workers. The majority of employees (66.58%) fell within the middle career stage (25–39 years). This age range is known for its adaptability and innovation potential [74]. The workforce displayed high educational qualifications as 49.87% possessed bachelor’s degrees, along with an additional 15.68% having master’s-level education or above. The highly educated workforce aligns with research that shows better creativity and innovation outcomes [75].
The work experience analysis showed that 46.53% of employees maintained 6 to 10 years of employment at their organization, thus meaning they had extensive exposure to leadership approaches and innovative processes. Staff members in the organization’s technology and R&D department represented the largest group (32.39%) while administration employees accounted for (17.99%) and marketing staff made up (13.37%), as most innovation efforts happen in technical and strategic roles. Finally, employees from different departments including Human Resources (11.83%) and Finance (6.68%) and Operations (9%) proved that innovation is embedded across the entire firm. This diversity strengthens this study’s validity and external credibility for assessing the mediating roles of creative potential and psychological safety in terms of the relationship between democratic leadership and employees’ innovative behaviors, as shown in Table 1.
Table 2 demonstrates that democratic leadership (DL) and psychological safety (PS) and creative potential (CP) maintain significant relationships with employee innovative behavior (EIB). Research revealed that democratic leadership and employee innovative behavior had a moderate positive relationship (r = 0.37, p < 0.01), demonstrating that participative leadership helps employees engage in innovative work. Previous research supports this idea that leaders who promote leader–member team involvement together with organizational openness produce innovative work environments [76].
The results indicated that EIB had positive associations with PS (r = 0.29, p < 0.01) and CP (r = 0.40, p < 0.01) which demonstrates that psychological safety and creative potential are essential for innovation. Workers who believe that their organization protects idea sharing exhibit stronger creative problem-solving abilities [46], and employees with higher creative potential or talent leadership show superior abilities to create and implement new solutions [77]. Additionally, this study reveals that democratic leadership practices positively affect the creative performance of employees through their significant relationship with CP (r = 0.33, p < 0.01). The research findings show a strong link between PS and CP (r = 0.34, p < 0.01) which demonstrates that supportive environments create better creative outcomes in accordance with workplace climate studies about innovation. The study results highlight the critical role of democratic leadership in driving innovation culture development particularly in hierarchical and collectivist organizations where employees need extra support for idea sharing and innovation participation.
4.2. Partial Least Squares Structural Equation Modeling (PLS-SEM)
The results of this study were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM), which is a more powerful technique for analyzing the relationships between constructs and works well for both measurement and structural models [78]. It also permits the assessment of reliability and validity in the measurement model at the same time as the examination of the posited relationship between the variables in the structural model. Smart PLS 4.1.0.8 was used for this assessment. To test the significance of the path coefficients and model weights, bootstrapping with 5000 subsamples was used, as recommended in empirical research [79].
Partial Least Squares Structural Equation Modeling (PLM–SEM) comprises two components. The initial element is a measuring model (or external model), which illustrates the correlation between the components and their indicators. The second component, the structural model (or internal model), illustrates the connection between two constructs. The outcomes of these analyses are summarized in the following sections.
4.3. An Analysis of the Measurement Model
For the purpose of testing the reliability, convergent validity, and discriminant validity of the constructs of the current study, the measurement model was evaluated based on the recommendation by [78]. Table 3 shows the reliability findings such as Cronbach’s alpha, Composite Reliability, Average Variance Extracted, Outer Loadings, and Variance Inflation Factor.
4.3.1. Reliability and Validity
Table 3 illustrates the reliability and validity of the constructs. The constructs exhibit high internal consistency based on Cronbach’s alpha (CA) and Composite Reliability (CR) values which surpass the established cutoffs (CA > 0.7, CR > 0.8) [80]. Precisely, DL (CA = 0.916, CR = 0.930), PS (CA = 0.843, CR = 0.888), CP (CA = 0.913, CR = 0.927), and EIB (CA = 0.909, CR = 0.929) are all constructs that show strong internal consistency. This implies that the measurement scales successfully capture the underlying constructs and provide consistent answers across diverse items. The Average Variance Extracted (AVE) values (DL = 0.598, PS = 0.614, CP = 0.560, EIB = 0.687) exceed the 0.5 threshold, which supports convergent validity [81]. Higher AVE values indicate that the measurement indicators successfully explain a sufficient amount of variance in their corresponding constructs, which improves construct validity. Outer loadings show values from 0.725 to 0.850, which surpass the necessary threshold of 0.7 and confirm the appropriate usage of indicators for construct measurement [78]. The loading assessment reveals that measurement items successfully capture their designated constructs. All Variance Inflation Factor (VIF) values range from 1.570 to 2.579 and demonstrate that multicollinearity does not exist because the values remain below the thresholds of 5 [82]. Low VIF values support the model’s strength as each indicator contributes uniquely to its construct. These results assist in further investigating the structural model by validating the measurement model.
4.3.2. Discriminant Validity
Fornell and Larcker [81] evaluated discriminant validity by showing that there was construct uniqueness. Table 4 demonstrates that the square root of the AVE measurement for each construct exceeded its correlations with other constructs. The square root of the AVE for employee innovative behavior (EIB = 0.829) displayed higher values than its related correlations with democratic leadership (DL = 0.366), psychological safety (PS = 0.294), and creative potential (CP = 0.397). The measurement model demonstrates discriminant validity because the constructs remain distinct from each other with minimal cross-loadings.
The Heterotrait–Monotrait Ratio (HTMT) served as an additional method for evaluating discriminant validity [83]. HTMT values under 0.85 indicate discriminant validity [84]. Table 5 demonstrates that all HTMT values stay within the acceptable boundaries, which demonstrates discriminant validity. All relationships between constructs fall below 0.85 including EIB-DL (0.399), EIB-PS (0.333), EIB-CP (0.432), DL-PS (0.219), DL-CP (0.355), and PS-CP (0.385), indicating that the constructs maintain clear distinctions from one another.
4.4. An Analysis of the Structural Model
After checking the measurement model, the next step was to check the structural equation model by looking at the R2 value, the pathway value, and the forecast relevance value [85].
Table 6 illustrates path coefficients and hypothesis testing. The SEM analysis revealed all theoretical connections between democratic leadership (DL) and psychological safety (PS) and creative potential (CP) as drivers of employee innovative behavior (EIB). The analysis confirmed that democratic leadership directly drives employee innovation through a significant positive relationship (β = 0.366, t = 8.609, p < 0.001) which matches with a previous study [31]. Hypothesis 2 (DL → PS → EIB) received statistical support (β = 0.031, t = 2.480, p = 0.013), demonstrating that democratic leadership creates psychological safety which leads to increased innovation in line with [86]. The research findings support Hypothesis 3 (DL → CP → EIB) (β = 0.086, t = 4.116, p < 0.001) which demonstrates how democratic leadership drives human creative potential to generate innovative behavior [20]. The complete mediating influence between DL and EIB (β = 0.117, t = 4.815, p < 0.001) demonstrates the cooperative effects of PS and CP on innovation [20]. This research establishes democratic leadership as essential for innovation by means of psychological safety combined with creative potential.
Table 7 displays R2 values, which represent the predictive power of the models. The effects of democratic leadership on psychological safety amount to a 3.8% share of variance in the model. The strength of DL as a predictor of creative potential (CP) reaches 10.9% according to the explained variance. The combination of democratic leadership and psychological safety and creative potential explains 24.1% of employee innovative behavior changes. The relationship between democratic leadership and innovation emerges through psychological safety and creative potential which strengthens its impact on workplace creativity and innovation.
Table 8 illustrate the Predictive Relevance (Q2) results. The results for Predictive Relevance (Q2) reveal that the model can indeed forecast results for the endogenous constructs, as all the obtained Q2 values are greater than 0, which points toward Predictive Relevance [82]. Democratic leadership (Q2 = 0.072) is considered to have small but significant predictive importance, which corresponds to the concept of affecting innovation [87]. Psychological safety (Q2 = 0.029), as the results suggest, has limited predictive significance, backing up its significance in prompting innovative behavior [88]. Creative potential (Q2 = 0.073) has small but significant predictive significance, evidence that underlines the importance of creativity as identified in other studies [89]. The research outcomes confirm that the model effectively predicts innovation outcomes by utilizing leadership approaches together with mediating constructs.
Table 9 demonstrates that there is acceptable model fit based on multiple key fit indices. The model fit assessment demonstrates acceptable results through SRMR values that range from 0.049 to 0.073, which falls below the ≤0.08 threshold [78]. The Chi-Square/df values (921.115, 940.820) fulfill the ≤3 requirement which indicates proper model adequacy [90]. The model fit assessment through NFI values of 0.871 and 0.868, slightly lower than 0.90, indicating an adequate model fit [91]. The obtained assessment results demonstrate that the model effectively explains democratic leadership interactions together with psychological safety and creative potential to produce employee innovative behavior.
Figure 2 illustrates the structural equation model. Democratic leadership affects employee innovative behavior through creative potential and psychological safety. The circles show the measurement accuracy levels of constructs based on Cronbach’s alpha values. The figure presents path coefficients with reliability scores, and their p-values appear along the lines connecting model elements. The research model shows that DL influences EIB through PS and CP as significant mediators.
5. Discussion
This study examined the impact of democratic leadership on employee innovative behavior, with psychological stability and creative potential serving as mediating variables. This research is grounded in Self-Determination Theory (SDT) and Social Cognitive Theory (SCT) to explain how democratic leadership fosters psychological stability and enhances creative potential, ultimately resulting in increased innovation among employees. This study used empirical data from Pakistan’s textile SMEs to test the anticipated mediated effects and support the research model. This research indicated that democratic leadership fosters a workplace environment that enhances psychological safety while simultaneously empowering employees to leverage their creativity for innovative endeavors. The research findings provide theoretical and practical insights for democratic leadership in hierarchical Pakistani business cultures, which are discussed below.
5.1. Theoretical Implications
First, the findings show that democratic leadership has a favorable impact on EIB, which supports the extensive leadership literature that emphasizes the importance of participatory decision-making in fostering innovation [92]. While previous research has extensively examined transformational leadership as a key driver of innovation through vision and inspiration [93] and transactional leadership as an approach that improves performance through structured rewards [94], our study expands on this discussion by highlighting the role of democratic leadership as a distinct yet effective mechanism for fostering innovation.
This study establishes evidence for a previous study’s finding that empowering leadership styles promote employee innovation through democratic leadership approaches [95]. Research by Fu et al. [96] receives additional support through our findings which demonstrate that inclusive leadership leads to creative work environments by promoting knowledge sharing and psychological safety. This research demonstrates that democratic leadership approaches effectively motivate employee creativity within Pakistani textile industry settings that demonstrate high-power-distance behaviors. The lack of research about how democratic leadership influences innovation within hierarchical organizational cultures makes this finding important.
Second, the results show that psychological safety plays a big role in the connection between democratic leadership and EIB. This is in line with the idea that psychological safety is a key factor in encouraging creativity and learning in organizations [97]. Employees who feel comfortable expressing their opinions, presenting novel ideas, and taking calculated risks are more inclined to participate in creative activities that benefit the firm [98].
This study expands on existing research about corporate hierarchical cultures where employees avoid innovation due to the fear of criticism or rejection [99]. The results of our study suggest that democratic leadership serves as a corrective force to establish workplaces that foster psychological safety in innovative contributions. This is in alignment with Chen, Wadei, Bai, and Liu [50] who found that psychological safety enhances the relationship between participatory leadership and innovation results. The present research highlights how cultures without fear and with open communication establish psychological safety as a fundamental factor that drives EIB.
Third, this study reveals that creative potential functions as a mediating factor which links democratic leadership to EIB measurement in psychologically safe environments. Our research builds on the findings of a study by Ye et al. [100] that revealed that leaders who engage in participatory decision-making for creativity purposes elevate employee creative potential which leads to innovation. In a similar vein, one study discovered that leaders who develop environments that support exploration and learning enable their employees to transform creative ideas into actual innovative outputs [65]. Our study validates previous findings which show that democratic leadership boosts innovation not only directly but also by strengthening employee creativity to promote innovation.
5.2. Practical Implications
In order to encourage innovation, information exchange, and psychological safety among workers, managers and policymakers should re-evaluate conventional hierarchical leadership models and adopt democratic leadership practices. Businesses that use participative leadership techniques will be in a better position to maintain long-term innovation and compete in dynamic markets.
This research indicates that democratic leadership serves to unlock innovation potential among employees in the highly hierarchical Pakistani textile industry. Leadership efforts to establish psychological safety together with autonomy enable employees to take risks and share knowledge, which fosters innovation inside hierarchical organizations. This strategy proves the most useful in organizations whose decisions are made from central locations.
This study emphasizes the significance of structured participative decision-making in hierarchical firms, enabling employees to contribute ideas while maintaining leadership control over strategic decisions.
Further, this study emphasizes the importance of leadership development programs that foster a psychologically safe work environment, focusing on constructive feedback, inclusive communication, and open dialogue to reduce the fear of failure, encourage creativity, and reward innovation.
Additionally, organizations should adopt performance evaluation systems that acknowledge both innovative and creative efforts. Traditional performance evaluation systems prioritize efficiency and error reduction, whereas encouraging people to take chances and solve problems creatively promotes fresh ideas.
Moreover, this study suggests that organizations in hierarchical settings can enhance sustainable innovation and their competitive advantage by integrating democratic leadership through participative initiatives, leadership training, and cultural adaptation strategies.
Despite the benefits of democratic leadership, its implementation in hierarchical organizations is not without challenges. Hierarchical organizations resist the implementation of democratic leadership because their senior management and staff members dislike sharing decision-making authority. A step-by-step implementation of democratic practices is recommended to address these obstacles.
In summary, this study suggests that organizations, especially those in hierarchical industries, should reconsider their leadership methods. By promoting psychological safety, encouraging employee creativity, and incorporating participative decision-making, organizations can boost innovation and sustain competitiveness. This approach, based on democratic leadership principles, fosters a culture that values and nurtures employee creativity.
6. Conclusions
This study provides robust evidence for the impact of democratic leadership on EIB, mediated by psychological safety and creative potential. The findings underscore the importance of fostering inclusive and empowering leadership styles to drive innovation. By advancing the theoretical understanding of leadership–innovation dynamics and offering practical insights, this study contributes to both the academic literature and organizational practices, particularly in the context of developing economies. The current study empirically expands our understanding by showing how democratic leadership works differently when applied to hierarchically organized collectivist societies compared to individualistic environments. In Pakistani society, with its collectivistic and power-distance-oriented culture, people demonstrate better performance under democratic leadership than other leadership styles. Henceforth, this empirical study establishes that leaders need to adjust their leadership styles to match with different cultural settings (individualism/collectivism) to foster sustainable innovation by promoting employee innovative work behavior.
7. Limitations and Future Research
Despite its contributions, this study has several limitations that should be acknowledged, and they provide directions for future research.
This research analyzes how democratic leadership approaches could be developed within hierarchical establishments in Pakistan’s textile sector. Future research should extend to analyzing technology, healthcare, and financial industries in order to achieve a broad applicability of the results across different business and cultural contexts.
This study did not consider gender and demographic diversity as potential influencing factors in the leadership–innovation relationship. Future research should explore the impact of gender-inclusive leadership styles, team composition diversity, and generational differences on workplace innovation.
The rapid growth of digital transformation, automation, and smart technologies is transforming workplace innovation. Future research should explore digital leadership’s interaction with democratic leadership, virtual work environments, and e-leadership’s impact on innovation and innovative work behaviors.
Conceptualization, J.L. and M.I.; methodology, M.I.; software, M.I.; validation, J.L., M.I. and S.B.; formal analysis, M.I.; investigation, M.I.; resources, M.I.; data curation, M.I.; writing—original draft preparation, M.I., J.L. and S.B; writing—review and editing, M.I.; visualization, W.R.; supervision, J.L.; project administration, M.I. and W.R.; funding acquisition, J.L. All authors have read and agreed to the published version of the manuscript.
Not applicable.
Not applicable.
The data presented in this study are available on request from the first author.
The authors sincerely thank the all respondents for their participation and the organizations for supporting this research.
The authors declare no conflict of interest.
Footnotes
Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.
The demographic profile of the survey participants.
| Characteristics | Categories | Frequency | Percentage (%) | Means | S.D. |
|---|---|---|---|---|---|
| Gender | Male | 218 | 56.04 | 1.44 | 0.497 |
| Female | 171 | 43.96 | |||
| Age | Age Below 25 | 83 | 21.34 | 2.40 | 1.042 |
| Age 25–29 | 132 | 33.93 | |||
| Age 30–39 | 127 | 32.65 | |||
| Age 40–50 | 30 | 7.71 | |||
| Age Over 50 | 17 | 4.37 | |||
| Education | Matric or Below | 38 | 9.77 | 2.71 | 0.845 |
| College Degree | 96 | 24.68 | |||
| Bachelor’s Degree | 194 | 49.87 | |||
| Master’s Degree or Above | 61 | 15.68 | |||
| Experience at the current organization (tenure) | Working < 3 Years | 62 | 15.94 | 2.59 | 0.920 |
| Working 3–5 Years | 91 | 23.39 | |||
| Working 6–10 Years | 181 | 46.53 | |||
| Working > 11 Years | 55 | 14.14 | |||
| Department | Administration Dept | 70 | 17.99 | 3.32 | 2.082 |
| Technology/R&D Dept | 126 | 32.39 | |||
| Marketing Dept | 52 | 13.37 | |||
| Finance and Accounts Dept | 26 | 6.68 | |||
| Human Resources Dept | 46 | 11.83 | |||
| Sales Dept | 19 | 4.88 | |||
| Operations Dept | 35 | 9 | |||
| Logistics Dept | 15 | 3.86 |
Correlations.
| EIB | DL | PS | CP | |
|---|---|---|---|---|
| EIB | 1.000 | |||
| DL | 0.366 | 1.000 | ||
| PS | 0.294 | 0.194 | 1.000 | |
| CP | 0.397 | 0.331 | 0.341 | 1.000 |
Measurement model: reliability and validity.
| Items | Outer Loading | Outer Model VIF | CA | CR | AVE |
|---|---|---|---|---|---|
| DL1 | 0.772 | 2.060 | 0.916 | 0.930 | 0.598 |
| DL2 | 0.818 | 2.348 | |||
| DL3 | 0.745 | 1.890 | |||
| DL4 | 0.753 | 1.969 | |||
| DL5 | 0.757 | 2.031 | |||
| DL6 | 0.796 | 2.177 | |||
| DL7 | 0.739 | 1.882 | |||
| DL8 | 0.785 | 2.071 | |||
| DL9 | 0.789 | 2.198 | |||
| PS1 | 0.805 | 1.865 | 0.843 | 0.888 | 0.614 |
| PS2 | 0.759 | 1.570 | |||
| PS3 | 0.799 | 1.794 | |||
| PS4 | 0.778 | 1.930 | |||
| PS5 | 0.776 | 1.952 | |||
| CP1 | 0.737 | 2.026 | 0.913 | 0.927 | 0.560 |
| CP2 | 0.773 | 2.109 | |||
| CP3 | 0.776 | 2.004 | |||
| CP4 | 0.748 | 1.914 | |||
| CP5 | 0.759 | 1.954 | |||
| CP6 | 0.748 | 1.913 | |||
| CP7 | 0.738 | 1.920 | |||
| CP8 | 0.736 | 1.991 | |||
| CP9 | 0.725 | 1.815 | |||
| CP10 | 0.741 | 1.894 | |||
| EIB1 | 0.823 | 2.297 | 0.909 | 0.929 | 0.687 |
| EIB2 | 0.826 | 2.215 | |||
| EIB3 | 0.829 | 2.283 | |||
| EIB4 | 0.798 | 2.122 | |||
| EIB5 | 0.845 | 2.492 | |||
| EIB6 | 0.850 | 2.579 |
Fornell–Larcker criterion.
| EIB | DL | PS | CP | |
|---|---|---|---|---|
| EIB | 0.829 | |||
| DL | 0.366 | 0.773 | ||
| PS | 0.294 | 0.194 | 0.783 | |
| CP | 0.397 | 0.331 | 0.341 | 0.748 |
Heterotrait–Monotrait Ratio (HTMT).
| EIB | DL | PS | CP | |
|---|---|---|---|---|
| EIB | ||||
| DL | 0.399 | |||
| PS | 0.333 | 0.219 | ||
| CP | 0.432 | 0.355 | 0.385 |
Path coefficient and hypothesis testing.
| Hypothesis and Path | Path Coefficient (β) | S.D. | T Statistics | p-Values | Result |
|---|---|---|---|---|---|
| Direct Effects | |||||
| DL → PS | 0.194 | 0.047 | 4.130 | 0.000 | |
| DL→ CP | 0.331 | 0.049 | 6.787 | 0.000 | |
| PS → EIB | 0.157 | 0.046 | 3.404 | 0.001 | |
| CP → EIB | 0.261 | 0.049 | 5.284 | 0.000 | |
| H1: DL →EIB (Direct) | 0.366 | 0.043 | 8.609 | 0.000 | Supported |
| Specific Indirect Effects | |||||
| H2: DL→ PS → EIB | 0.031 | 0.012 | 2.480 | 0.013 | Supported |
| H3: DL → CP → EIB | 0.086 | 0.021 | 4.116 | 0.000 | Supported |
| Total Indirect Effect | |||||
| DL → EIB (Indirect through all mediators) | 0.117 | 0.024 | 4.815 | 0.000 | |
Explained variance (R2) results.
| Construct | R2 Value | Interpretation |
|---|---|---|
| Psychological Safety | 0.038 | 3.8% variance explained by DL in PS |
| Creative Potential | 0.109 | 10.9% variance explained by DL in CP |
| Employee Innovative Behavior | 0.241 | 24.1% variance explained by DL, PS and CP |
Predictive Relevance (Q2).
| Construct | Q2 Value | Predictive Relevance |
|---|---|---|
| Democratic Leadership | 0.072 | Relevant |
| Psychological Safety | 0.029 | Relevant |
| Creative Potential | 0.073 | Relevant |
Model fit.
| Model Fit Indicator | Saturated Model Value | Estimated Model Value | Threshold Value | Fit Evaluation |
|---|---|---|---|---|
| SRMR | 0.049 | 0.073 | ≤0.08 | Good Fit |
| NFI | 0.871 | 0.868 | ≥0.90 | Close to Threshold |
| Chi-Square/df | 921.115 | 940.820 | ≤3 | Acceptable Fit |
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