The Impacts of Transformational Leadership on Competitive Advantage of Local Accounting Firms

The emergence of the ASEAN Economic Community (AEC) had increased the competitiveness of many industries in South-East Asia. Since the accounting services have been heavily regulated by the Mutual Recognition Arrangements (MRA), the impact of AEC has led to the entrance of many foreign accounting firms in Indonesia, which may harm the local accounting firms if they do not have the competitive advantage to prosper. This research aims to find the influence of transformational leadership, organizational culture, and management control system to a competitive advantage. A set of questionnaires was assembled to measure each of the variables using the statements adapted from previous researches of the respective variables. Each statement is rated using a 5-point Likert scale and analyzed using SmartPLS. This study was conducted on 27 public accounting firms and 18 accounting service firms in Surabaya, Indonesia. The findings confirm that both transformational leadership and organizational culture have significant influence to competitive advantage, while management control system has no significant influence to competitive advantage. Moreover, the transformational leadership also shows significant influence on organizational culture and management control system and the influence of organizational culture to management control system as mediating variables also show a significant impact. Finally, this paper concludes that local accounting firms can, in the long run, improve their competitive advantage by adopting an interactive management control system and showing idealized influence characteristic as transformational leaders. Moreover, to answer the rapid changes in market demand caused by AEC, local accounting firms can also adopt market culture.