Introduction

Research on transformational leadership (TFL) indicates that TFL can be defined as the style of leadership that can engage the organization’s employees and encourage them to achieve the firm’s targets. Transformational leaders can be used to promote better performance by motivating individuals to collaborate in the pursuit of the firm’s higher-level objectives (Bass and Avolio, 2000; Sun et al., 2014). Meta analytic researches also indicate that transformational leaders are influential on outcomes at both the team level and the firm level (Lin et al., 2016). Hence, there is merit in further research into the mechanisms through which TFL encourages unit-level performance (Wang et al., 2011). Although the concept of TFL was initially targeted at chief executive officers (CEOs) (Burns, 1978), most studies on TFL have focused on “the close relationships (i.e. the direct interactions between the leader and employees) at lower levels of the managerial hierarchy” (Ling et al., 2008, p. 924). Few attempts have been made to explore the effects of firm-level senior executives’ transformational efforts on their subordinates’ knowledge sharing process and absorptive capacity (i.e. the ability to acquire, assimilate, transform, and Leadership & Organization Development Journal © Emerald Publishing Limited 0143-7739 D exploit) and performance at the unit level (Cohen and Levinthal, 1990). This omission is not unusual given the fact that successful transformational leaders at the firm level must encourage and promote a healthy, open environment at the unit level to ensure the best results from that unit (Wang et al., 2011). If these leaders are successful, they are often rewarded with disproportionally prestigious positions in regions of East Asia, including Taiwan (Huang et al., 2006). This study investigates the mediating mechanism and boundary conditions across levels, or the so-called “blackbox” (Dionne et al., 2004), between TFL at the firm-level and unit-level performance. Hence, the research problem in this study is to explore the intermediate mechanisms across organizational levels (i.e. firm and unit levels) between firm-level TFL and unit performance. Most specifically, this study elucidates the mediating role of unit-level knowledge sharing between firm-level TFL and unit performance. Also, this research examines the moderating mechanism of unit-level absorptive capacity between the relationship of firm-level TFL and unit-level knowledge sharing and the moderating mechanism of unit-level knowledge sharing and unit performance. In other words, the research gaps identified in this study are the lack of exploration of cross-levels mechanism and moderation mechanisms between firm-level TFL and unit performance. This echoes previous studies’ (e.g. Braun et al., 2013; Crossan et al., 1999) call for multilevel research regarding unblocking the TFL and followers’ performance. This study has several contributions. First, we attempt to integrate the leadership and knowledge management research by exploring the critical mediator of unit-level knowledge sharing in explaining the effects of firm-level TFL on employees’ performance at the unit level.