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The aim of the study was to examine the effect of leadership styles on organizational performance with specific reference to Commercial banks operate in Jimma Town. To achieve the objectives the study causal type of research and panel design was used to examine the amount of effect that leadership style could exert on the bank’s performance. The primary data sources were leaders on different levels and their subordinate employees while; the secondary data sources were annual report of individual banks and from an audit financial report of National Bank of Ethiopia. Multifactor Leadership Questionnaire was adapted for collection of leadership styles representing questions. The descriptive and inferential analyses were conducted to analyze the collected data. Subsequently, the researcher employed Random Effect Model to investigate the extent of the relationship between independent variables and dependent variables. The study results revealed that both transformational and transactional leadership have strong positive effect on the ROA. Thus, transformational that brings changes in working environment by inspiring and motivating employees for changes, creation, innovation, to go beyond from what they actually think they can; and transactional that reward employees and make recognition in exchange for the work they perform, giving close directions and guidance have positive and significant effect in promoting the performance of the bank. Based on the study results, the provided recommendation was that the leaders of banks should focus on playing a role model by taking first step of what they talk about and keep consistent in their action in the way that getting trust and loyalty from employees and in instilling confidence, commitment and vision in employees and the Stakeholders in the industry should consider taking banking in a non-traditional direction by placing more emphasis on understanding leadership style and its effects on improving results.
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