Entrepreneurship is a key driver of economic growth and innovation, but its impact extends beyond business performance to workplace relationships and employee experiences. Entrepreneurs are not only strategic decision-makers but, especially in small businesses, they are also leaders of their employees, shaping the social and psychological dynamics of the workplace. While prior research has largely focused on the economic aspects of entrepreneurship, less attention has been given to how entrepreneurs, through their leadership, foster employee empowerment and well-being. This study examines how entrepreneurial leadership (LMX) in small businesses contributes to psychological empowerment, which in turn enhances work engagement and organizational commitment. Entrepreneurs who cultivate a leadership approach characterized by trust, support, and mutual influence can create conditions that enhance employees' psychological empowerment. As a consequence, employees perceive greater competence, autonomy, meaning, and impact in their work, reinforcing their dedication to work and commitment to the business. Thus, we hypothesize that entrepreneurs' LMX has both direct and indirect effects on employees' work engagement and organizational commitment, through the mediation of psychological empowerment.
To test this model, we collected survey data from 219 employees (55% female; Mage = 34.60; SD = 12.12) working in small and micro enterprises, ensuring that respondents referred to their entrepreneur as their direct leader. Participants completed measures assessing LMX, Psychological Empowerment, Work Engagement, and Organizational Commitment. Structural Equation Modeling results confirmed that LMX is positively related to work engagement and organizational commitment, both directly and indirectly through psychological empowerment. These findings have theoretical and practical implications for the role of entrepreneurial leadership in small businesses. By developing supportive relationships with employees, entrepreneurs can create an empowering work environment that enhances employee engagement and organizational attachment. This perspective extends LMX theory to entrepreneurship and offers practical insights into the importance of entrepreneur-employee relationships in small businesses.