Asian Journal of Economics, Finance and Management

The purpose of this study is to investigate the effect of transformational leadership (TL) on operational efficiency (OE) with the mediating role of digitalization in Industry 4.0 (manufacturing firms). This research fills the gap by combining the dynamic capabilities theory (DCT) to describe how leadership can help in adopting the digital transformation and improve efficiency. This research used a quantitative approach and primary data, which were collected via structured closed-ended questionnaires. 400 questionnaires were distributed using convenience-based sampling among employees of manufacturing firms, and 331 complete responses were received.  The current study used a deductive approach with the positivist philosophy, and the Partial Least Squares Structural Equation Modeling (PLS-SEM) technique was used for analysis using smart PLS 4. The findings of the study reveal that TL has a significant positive effect on OE. Digitalization fully mediates the relationship between TL and OE. The findings signify the impact of the leadership in assisting the technological advancements to optimize the processes and increase productivity. The research findings help owners and policymakers to train the leaders for digital technology adoption to increase the OE of firms. The government should support digital transformation by providing incentives and training. This offers manufacturing industries, new approaches in how leadership and technology can drive efficiency.