The Resource-Based View (RBV) explains organizational performance by focusing on internal resources and capabilities rather than external market conditions. It posits that firms achieve sustainable competitive advantage when they possess resources that are valuable, rare, difficult to imitate, and not easily substituted by competitors. ^{11, 30, 31} These resources may include tangible assets, human capital, organizational routines, and managerial capabilities that are embedded in the firm’s structures and processes. ³² RBV also recognises that firms are heterogeneous in their resource endowments, which leads to differences in strategic options and performance outcomes across organizations. Later developments extend RBV to consider network and ecosystem resources, showing that jointly used or relational assets can further enhance competitive advantage in complex environments. ^{33, 34}

Contingency Theory provides a complementary perspective by arguing that there is no single best way to organise or lead an organisation, and that effectiveness depends on the fit between internal arrangements and external conditions. Early formulations emphasised the match between leadership style and situational factors such as task structure, leader–member relations, and positional power. ^{35, 36} Subsequent work extended the theory to organisational design and strategy, suggesting that structures, processes, and strategic choices must be aligned with environmental characteristics, including market dynamics, technology, and regulatory frameworks. ³⁷ In this view, internal practices such as governance, leadership, and strategy do not operate in isolation but are conditioned by the policy and institutional context in which organisations operate. Contingency Theory therefore offers a useful lens for understanding how government policy can strengthen or weaken the performance effects of internal capabilities in public and hybrid organisations such as regional-owned enterprises. ³⁸

Corporate governance is an effort to maximize corporate profits in a manner that does not impose undue costs on other individuals or on society as a whole. ¹⁶ According to Jeżak and Bohdanowicz, ³⁹ corporate governance is the way in which a company resolves conflicts among different groups that influence corporate management, thereby shaping its strategy and behavior in the capital market, the goods and services market, and the labour market. Ayuso and Argandoña ⁴⁰ define corporate governance as a system by which organizations are directed and controlled, which determines the distribution of rights and responsibilities between shareholders and managers, as well as the rules and procedures for decision-making in corporate matters. In a broader sense, corporate governance also encompasses relationships with other stakeholders, both internal (e.g., employees) and external (e.g., customers, suppliers). ¹⁹

Transformational leadership is a leadership style that fosters positive change in individuals and organizations. ⁴¹ It is a mechanism through which leaders and employees promote virtue, enthusiasm, inspiration, and determination in pursuing, acquiring, and sharing knowledge to achieve common goals, while setting aside personal interests. ²² Within transformational leadership, leaders act more as agents of change by demonstrating role-model behavior and inspiring their members to prioritize collective interests over individual ones. ²¹

Business strategy is the approach used by firms to achieve long-term objectives and optimize performance in a continuously changing environment. ² To adapt to shifts in markets, technology, and regulation, firms must possess the capability to undergo ongoing transformation. Teece et al. ¹² explains that firms must be able to innovate and manage change in order to remain competitive. These dynamic capabilities include the ability to identify external opportunities or threats, adapt business strategies, and deploy resources more effectively to address emerging challenges. ¹²

Business performance refers to the extent to which a firm or organization is able to achieve its predetermined objectives, taking into account various dimensions such as operational efficiency, strategic effectiveness, and the attainment of desired outcomes. ⁴² Business performance encompasses multiple aspects that go beyond financial results, including product quality, customer satisfaction, as well as sustainability and adaptability to market changes. ⁴³

Business performance can thus be understood as a measure of how far a firm is able to reach its targets in terms of growth, profitability, and sustainability within a competitive environment. ⁴⁴ It also includes how the firm utilizes existing resources to create value, adapt to market changes, and sustain its competitive advantage. ⁴⁵ For regionally owned enterprises, knowledge of governance and effective management is crucial for their success and for contributing to local economic development. ⁴⁶

Government policy is defined as the actions taken by the government to achieve particular objectives. According to Jenkins, ⁴⁷ government policy is a set of decisions made by political actors to choose goals and the means to achieve those goals. Government policy can be understood as whatever government chooses to do or not to do. ⁴⁸ Thus, government policy constitutes actions or activities undertaken or deliberately not undertaken by the government in pursuit of national objectives. Such policies include laws, government regulations, political decisions, programs, priorities, budgets, and so forth, which are formulated to address public problems or meet societal needs. ⁴⁹ Accordingly, government policy has a substantial impact on the lives of citizens.

The data for this study were collected through a structured questionnaire administered to 176 respondents. The respondents consisted of members of the Board of Directors of each BUMD Aneka Usaha, with each company represented by at least two individuals. According to data from the Ministry of Home Affairs in 2023, there are 313 BUMD Aneka Usaha owned by provincial and district/municipal governments across Indonesia. ⁵¹ Thus, the population of this study comprised 313 BUMD Aneka Usaha.

Given resource constraints, this study employed a sampling technique. The method used was random sampling, which provides each member of the population with an equal probability of being selected as part of the sample. This approach allows the collected data to remain relevant and comprehensive, while enhancing the reliability and validity of the research findings.

The indicators used in this study were carefully selected to ensure comprehensive measurement of the key research variables, namely Corporate Governance, Transformational Leadership, Business Strategy, Business Performance, and Government Policy. The selection of indicators was based on prior literature and considerations of relevance to the context of this study. Accordingly, each variable was measured through a set of indicators that not only reflect theoretical aspects but also capture practical dimensions pertinent to the conditions of BUMD Aneka Usaha in Indonesia. The detailed indicators for each research variable are presented systematically in Table 1.

In line with the embedded two-stage approach for higher-order constructs, the lower-order constructs (LOCs) were first assessed and found to meet the recommended thresholds for reliability and validity; therefore, the following results focus on the measurement model at the higher-order construct (HOC) level. The HOC measurement model was evaluated in terms of indicator reliability, internal consistency reliability, and convergent validity. Table 2 presents the standardized outer loadings, Cronbach’s alpha, composite reliability, and Average Variance Extracted (AVE) for all higher-order constructs.

As shown in Table 2, all standardized outer loadings are above the recommended threshold of 0.708, indicating that each indicator contributes substantially to its respective higher-order construct. For example, the indicators of Corporate Governance (X1) exhibit outer loadings ranging from 0.778 to 0.840, while Transformational Leadership (X2) shows loadings between 0.850 and 0.856. Business Strategy (Y1) presents loadings in the range of 0.876–0.891, Business Performance (Y2) between 0.727 and 0.888, and Government Policy (X3) between 0.713 and 0.814, supporting adequate indicator reliability across all constructs.

Internal consistency reliability was assessed using Cronbach’s alpha and composite reliability. All constructs report values greater than 0.70, which indicates acceptable to high reliability. For instance, Transformational Leadership (X2) records a Cronbach’s alpha of 0.876 and a composite reliability of 0.867, while Business Performance (Y2) shows values of 0.858 and 0.881, respectively. Corporate Governance (X1), Business Strategy (Y1), and Government Policy (X3) likewise meet or exceed the recommended cut-off values, confirming that the indicators within each higher-order construct are internally consistent.

Convergent validity was evaluated using the Average Variance Extracted (AVE). All constructs achieve AVE values above 0.50, suggesting that each higher-order construct explains more than 50% of the variance in its indicators. Transformational Leadership (X2) has an AVE of 0.809, Business Strategy (Y1) 0.784, and Government Policy (X3) 0.613, while Corporate Governance (X1) and Business Performance (Y2) also display AVE values exceeding 0.50. These results indicate that convergent validity is satisfactorily established for all higher-order constructs.

The next criterion to be considered is discriminant validity. This validity is assessed using the Heterotrait–Monotrait (HTMT) ratio, which serves as a benchmark for examining the extent to which the constructs in the model are empirically distinct from one another. Table 3 reports the HTMT values among the higher-order constructs.

All HTMT values are below the conservative threshold of 0.90, with, for example, a value of 0.641 between Corporate Governance (X1) and Transformational Leadership (X2), 0.656 between Business Strategy (Y1) and Business Performance (Y2), and 0.684 between Government Policy (X3) and Business Performance (Y2). These results indicate that the constructs are empirically distinct from one another, thereby confirming discriminant validity at the HOC level.

Taken together, the evidence for indicator reliability, internal consistency reliability, convergent validity, and discriminant validity shows that the measurement model at the higher-order level is robust and suitable for subsequent structural model evaluation and hypothesis testing.

In PLS-SEM, the evaluation of the structural model is conducted to identify and assess the relationships among the latent variables. The present study follows the procedures recommended by Hair et al. (2022). The first step involves examining potential collinearity issues in the structural model, as high collinearity may bias the estimation of path coefficients. Collinearity was assessed using the Variance Inflation Factor (VIF), which detects the extent to which the independent variables are linearly related to each other.

As shown in Table 4, all VIF values are well below the threshold of 3.3 suggested by Kock (2015), indicating that collinearity is not a concern in this model. Corporate Governance (X1) has a VIF of 1.350 and Transformational Leadership (X2) a VIF of 1.010, both of which suggest that there is no significant collinearity with other variables. Business Strategy (Y1) and Business Performance (Y2) report VIF values of 1.738 and 1.795, respectively, which remain within acceptable limits and indicate low levels of collinearity. Similarly, Government Policy (X3) has a VIF value of 1.693, also below the critical cut-off. Overall, the VIF values for all variables fall within the acceptable range, suggesting that there is no significant multicollinearity among the independent variables. Consequently, the estimated path coefficients in the structural model can be regarded as reliable and not distorted by collinearity problems.

4.3.1 Direct effects

The analysis of direct effects in this study involves two exogenous variables (Corporate Governance and Transformational Leadership) and two endogenous variables (Business Strategy and Business Performance). The interactions among these variables give rise to five direct causal relationships that were tested. The results of the direct effect analysis are presented in Table 5.

The following paragraphs provide a more detailed explanation of each direct effect tested in this study. H1:

Corporate Governance (X1) has an effect on Business Strategy (Y1)

The effect of Corporate Governance (X1) on Business Strategy (Y1) yields a path coefficient of 0.431 with a p-value of 0.000. Since the p-value is less than 0.05 and the coefficient is positive, Corporate Governance has a positive and significant effect on Business Strategy. This indicates that better corporate governance practices are associated with more effective business strategies. Thus, hypothesis 1 is supported. H2:

Transformational Leadership (X2) has an effect on Business Strategy (Y1)

Transformational Leadership (X2) has a path coefficient of 0.240 with a p-value of 0.031 in its effect on Business Strategy (Y1), indicating a positive and significant relationship. This suggests that higher-quality transformational leadership contributes to the development and implementation of better business strategies. Hence, hypothesis 2 is supported. H3:

Business Strategy (Y1) has an effect on Business Performance (Y2)

Business Strategy (Y1) exhibits a path coefficient of 0.262 with a p-value of 0.001 in its effect on Business Performance (Y2). This result demonstrates that Business Strategy exerts a positive and significant influence on Business Performance, meaning that effectively designed and implemented business strategies lead to improved performance outcomes. Therefore, hypothesis 3 is supported. H4:

Corporate Governance (X1) has an effect on Business Performance (Y2)

Corporate Governance (X1) shows a positive and significant direct effect on Business Performance (Y2), with a path coefficient of 0.206 and a p-value of 0.005. This finding indicates that sound corporate governance directly contributes to enhanced business performance. Thus, hypothesis 4 is supported. H5:

Transformational Leadership (X2) has an effect on Business Performance (Y2)

Transformational Leadership (X2) also has a positive and significant effect on Business Performance (Y2), with a path coefficient of 0.175 and a p-value of 0.040. This suggests that transformational leadership directly supports improvements in business performance. Therefore, hypothesis 5 is supported.

4.3.2 Inderect effects

Business Strategy (Y1) serves as a mediating variable that links Corporate Governance (X1) and Transformational Leadership (X2) to Business Performance (Y2). By including Business Strategy as a mediator, the indirect effects of the exogenous variables on the endogenous variable can be identified. The results of the mediation analysis are presented in Table 6.

As shown in Table 6, Corporate Governance (X1) exerts a positive and significant indirect effect on Business Performance (Y2) through Business Strategy (Y1), with a path coefficient of 0.113 and a p-value of 0.006. This implies that improvements in corporate governance enhance business performance partly through the strengthening of business strategies.

Similarly, Transformational Leadership (X2) has a positive and significant indirect effect on Business Performance (Y2) via Business Strategy (Y1), with a path coefficient of 0.063 and a p-value of 0.035. This finding indicates that transformational leadership facilitates the development of more effective business strategies, which in turn lead to better performance outcomes. Overall, Business Strategy is confirmed as a significant mediating variable in the relationships between the exogenous variables and Business Performance.

4.3.3 Moderating effects of government policy

The moderating role of Government Policy (X3) was examined to determine the extent to which government policy strengthens or weakens the effects of Corporate Governance (X1), Transformational Leadership (X2), and Business Strategy (Y1) on Business Performance (Y2). The results of the moderation analysis are summarised in Table 7. H6:

Government Policy (X3) moderating the effect of Corporate Governance (X1) on Business Performance (Y2)

The interaction between Corporate Governance (X1) and Government Policy (X3) on Business Performance (Y2) yields a path coefficient of 0.161 with a p-value of 0.039. This indicates a positive and significant moderating effect, suggesting that a more supportive government policy environment strengthens the impact of corporate governance on business performance. Thus, hypothesis 6 is supported. H7:

Government Policy (X3) moderating the effect of Transformational Leadership (X2) on Business Performance (Y2)

The interaction between Transformational Leadership (X2) and Government Policy (X3) on Business Performance (Y2) results in a path coefficient of 0.115 with a p-value of 0.025. This demonstrates that Government Policy significantly enhances the positive effect of Transformational Leadership on Business Performance. Therefore, hypothesis 7 is supported. H8:

Government Policy (X3) moderating the effect of Business Strategy (Y1) on Business Performance (Y2)

The interaction between Business Strategy (Y1) and Government Policy (X3) on Business Performance (Y2) shows a path coefficient of 0.168 with a p-value of 0.040. This implies that supportive government policies amplify the positive effect of Business Strategy on Business Performance. Hence, hypothesis 8 is supported.

4.3.4 Predictive relevance of the model (PLSpredict)

To evaluate the predictive relevance of the model, the PLSpredict procedure was employed. This procedure compares the predictive performance of the PLS-SEM model with that of a benchmark linear model (LM) using Q ²predict, Root Mean Square Error (RMSE), and Mean Absolute Error (MAE). The results are presented in Table 8.

All Q ²predict values are greater than zero (ranging from 0.097 to 0.281), indicating that the model exhibits meaningful predictive relevance. Positive Q ²predict values suggest that the PLS-SEM model outperforms a naïve benchmark model without predictors. In terms of predictive accuracy, the RMSE and MAE values for the PLS model are generally lower or very close to those of the LM benchmark. For several indicators (e.g. Y1.1, Y1.2, Y1.3, Y2.3, Y2.6, Y2.7), both RMSE and MAE for PLS are lower than those for LM, indicating that the PLS model provides slightly more accurate predictions. Overall, the combination of positive Q ²predict values and RMSE/MAE metrics that are comparable to or better than those of the LM benchmark indicates that the PLS-SEM model has adequate predictive power and can be considered reliable for predicting indicators of Business Strategy and Business Performance in new data.

The results indicate that corporate governance has a positive and significant effect on business strategy, with a path coefficient of 0.431 and a p-value of 0.000. This supports H1 and shows that stronger corporate governance practices are associated with more effective business strategies in regional-owned enterprises. Corporate governance in this study is reflected by dimensions such as transparency, accountability, fairness, responsibility, and board independence, while business strategy is formed by product and service innovation, organizational flexibility, and the allocation and management of resources.

These findings are consistent with the Resource-Based View (RBV), which posits that sustainable competitive advantage stems from valuable, rare, inimitable, and well-organized internal resources. ^{11, 63} In this context, an effective governance system functions as a strategic capability that shapes how decisions are made, risks are managed, and resources are allocated. Transparent and accountable governance processes provide a robust framework for strategic decision-making, enabling organizations to respond more quickly and coherently to environmental changes.

The results corroborate previous studies by Singh, ¹⁷ Saltaji, ¹⁹ Yakimov, ²⁰ and Al-Azzam et al., ⁶⁴ which consistently demonstrate that sound corporate governance positively influences strategic management processes. Principles such as transparency, accountability, and board independence offer safeguards against opportunistic behaviour and help align strategic decisions with long-term organizational sustainability. This is particularly salient for publicly monitored entities such as regional-owned enterprises, where strategic decisions must be both effective and accountable.

At the indicator level, accountability and transparency emerge as the strongest governance dimensions, suggesting that clear lines of responsibility and open information disclosure are especially critical for shaping strategic choices. ⁶⁵ On the strategy side, organizational flexibility is the most dominant dimension, indicating that good governance tends to be associated with more agile structures and processes, which are essential for timely adaptation in complex and regulated markets. ²

In practice, regional-owned enterprises operate across diverse sectors such as trade, services, mining, and transport, which inherently increases managerial complexity. In such a context, governance becomes a necessary foundation to maintain strategic coherence across multi-business portfolios. Overall, the findings underscore that strengthening corporate governance is not merely a compliance requirement but a strategic imperative. Governance mechanisms that emphasize transparency, accountability, and board independence provide the structural and procedural conditions needed to develop innovative products and services, enhance organizational flexibility, and allocate resources efficiently—ultimately supporting more robust and sustainable business strategies.

The analysis shows that transformational leadership has a positive and significant effect on business strategy, with a path coefficient of 0.240 and a p-value of 0.031, thereby supporting H2. Transformational leadership in this study is reflected by idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration. Among these, individualized consideration provides the strongest contribution, indicating that leaders’ attention to individual needs, aspirations, and development is particularly influential in shaping overall leadership quality.

Business strategy is represented by product and service innovation, organizational flexibility, and resource allocation and management, with organizational flexibility again emerging as the strongest dimension. This pattern suggests that a leadership style that emphasizes individual development and support tends to foster a more adaptive, flexible, and innovative strategic posture. ⁶⁶ From an RBV perspective, transformational leadership can be seen as an intangible, firm-specific resource that enhances the deployment of other resources and capabilities. ⁶³ By articulating a compelling vision, stimulating new ways of thinking, and attending to the personal growth of employees, transformational leaders help translate internal resources into coherent and adaptive strategic initiatives.

The findings are consistent with previous research by Yasmeen et al. ²⁵ and Abuzaid et al., ⁶⁷ which demonstrate that transformational leadership significantly influences strategy formulation and implementation. Through inspirational motivation and intellectual stimulation, transformational leaders create a supportive climate for questioning existing routines, exploring new strategic options, and embracing change.

The prominence of individualized consideration in this study is particularly noteworthy. Leaders who mentor, coach, and recognise employees as individuals foster higher levels of trust, commitment, and discretionary effort. ⁶⁸ These conditions make employees more willing and able to support strategic changes, thereby enhancing the organization’s adaptability. In line with the RBV logic, transformational leadership operates as a valuable internal capability that leverages human capital to create adaptive, hard-to-imitate business strategies. ⁶³

Overall, the positive and significant effect of transformational leadership on business strategy indicates that leadership quality is a critical lever for building and maintaining adaptive strategic capabilities. In the context of regional-owned enterprises, where organizations face both commercial pressures and public mandates, transformational leadership supports the development of strategies that are not only innovative and flexible but also aligned with broader organizational and societal goals.

Business strategy has a positive and significant effect on business performance, with a path coefficient of 0.262 and a p-value of 0.001, thereby confirming H3. Business strategy in this study comprises product and service innovation, organizational flexibility, and resource allocation and management, while business performance is measured through financial returns, operational excellence, market performance, profitability, sales growth, customer satisfaction, and company reputation.

Within the RBV framework, strategy represents the way an organization orchestrates its internal resources and capabilities to achieve superior performance. Strategies that emphasize innovation, flexibility, and efficient resource allocation enable firms to adjust to environmental changes and exploit emerging opportunities more effectively. ⁶³ The strong role of organizational flexibility underscores that the ability to reconfigure structures and processes quickly is central to performance enhancement in dynamic environments.

In the context of regional-owned enterprises, a well-formulated business strategy contributes to improved operational efficiency, better alignment with customer needs, and stronger reputational outcomes. Organizations that are flexible and responsive are more likely to meet service expectations, maintain competitive offerings, and build customer trust, which together enhance financial returns and long-term viability.

These results are in line with Handoyo et al., ¹⁴ Ricardianto et al., ¹⁵ Arif et al., ¹⁸ and Ilmudeen and Bao, ¹ who find that effective business strategies significantly improve firm performance. In this study, organizational flexibility emerges as the dominant strategic dimension, which logically connects to key performance indicators such as market performance, sales growth, and company reputation. The capacity to adapt quickly to regulatory changes, political priorities, and market dynamics appears to be a decisive factor in converting strategic intent into actual performance gains.

Differences with Latifah et al. ²⁸ study, which report non-significant direct effects, may be attributed to sectoral and contextual variation. Regional-owned enterprises operate in complex, highly regulated environments where strategic misalignment can have immediate consequences, making the direct impact of strategy on performance more visible. In less regulated or smaller-scale contexts, the effect of strategy may be more indirect and mediated by other capabilities, such as innovation or information systems.

Overall, the findings suggest that developing and implementing flexible, innovation-oriented strategies is crucial for enhancing the performance of regional-owned enterprises. The prominence of organizational flexibility indicates that the capacity to adapt quickly to environmental change is a key performance driver across financial, operational, and reputational dimensions.

H4, which posits that corporate governance affects business performance, is supported, with a path coefficient of 0.206 and a p-value of 0.005. This confirms a positive and significant relationship between corporate governance and the performance of regional-owned enterprises. Corporate governance in this study is measured through transparency, accountability, fairness, responsibility, and board independence. These elements collectively contribute to improvements across all dimensions of business performance, including financial outcomes, operational efficiency, market position, growth, customer satisfaction, and reputation.

From an RBV standpoint, effective governance can be interpreted as an organizational capability that enables better coordination, control, and alignment between stakeholders and strategic goals. ⁶³ Transparent reporting and clear accountability reduce information asymmetry and agency problems, thereby enhancing decision quality and stakeholder trust.

The findings align with prior research by Nag and Chatterjee, ⁶⁹ Mustafa et al., ¹⁸ and Çelik and Gülle, ⁷⁰ which show that strong governance structures improve economic performance and firm value. In this study, accountability emerges as the strongest governance dimension. When roles, responsibilities, and performance expectations are clearly defined and enforced, managers and directors are more likely to deploy resources efficiently, minimise waste, and avoid misuse, thereby directly supporting operational excellence and profitability.

The importance of transparency and reputation also reflects the specific context of regional-owned enterprises, which are subject to high levels of public scrutiny. Transparent disclosure and responsible behaviour serve as positive signals to citizens, regional governments, and business partners, strengthening legitimacy and trust. Enhanced reputation, in turn, facilitates access to external resources, partnerships, and market opportunities—further reinforcing performance outcomes.

Overall, the results provide strong evidence that corporate governance is a key lever for improving the business performance of regional-owned enterprises. Strengthening accountability, transparency, fairness, responsibility, and board independence is essential not only for compliance but also for building long-term competitive and reputational advantages in the public enterprise context.

H5, which examines the effect of transformational leadership on business performance, is supported. The path coefficient is 0.175 with a p-value of 0.040, indicating a positive and significant relationship. Transformational leadership, reflected by idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration, shows consistently significant loadings, confirming the robustness of the construct. Among these dimensions, individualized consideration provides the strongest contribution. This highlights the importance of leaders who invest in employees’ personal development, provide tailored support, and acknowledge individual differences.

Through the RBV lens, transformational leadership can be considered a unique and valuable intangible resource that is difficult for competitors to imitate. ⁶³ By elevating employee motivation, fostering psychological safety, and encouraging innovation, transformational leaders help convert the potential of human resources into superior performance at both operational and financial levels. The results are consistent with Sobaih et al., ²⁴ who find that transformational leadership significantly enhances organizational performance across various sectors, and emphasize the role of employee empowerment and innovative work climates in translating leadership into performance outcomes.

In this study, the strong role of individualized consideration helps explain why dimensions such as company reputation and sales growth are closely associated with better leadership. Employees who feel valued and supported are more likely to deliver higher-quality services, generate positive customer experiences, and sustain productive relationships with stakeholders. These outcomes directly feed into improved reputation and enhanced market performance.

For regional-owned enterprises, where organizations must navigate diverse business lines and complex stakeholder environments, transformational leadership becomes a critical driver of integration and alignment. Leaders who combine inspirational motivation with individualized consideration can mobilize staff to embrace change, adopt new processes, and pursue continuous improvement, which in turn enhances operational excellence and financial results.

The results show that government policy significantly moderates the relationship between corporate governance and business performance, with a path coefficient of 0.161 and a p-value of 0.039. H6 is therefore supported. This indicates that supportive government policies amplify the positive effect of corporate governance on business performance.

Contingency Theory provides a useful lens for interpreting this finding. ³⁵ The theory posits that no single organizational practice or structure is universally effective; instead, effectiveness depends on its fit with situational factors. In this study, corporate governance represents an internal mechanism, whereas government policy functions as an external contingency factor. The beneficial impact of governance on performance is thus contingent upon the policy environment in which regional-owned enterprises operate.

In a conducive policy environment, characterized by consistent regulations, clear oversight mechanisms, and incentives for good governance, internal governance practices are more easily translated into performance improvements. For example, policies that promote electronic procurement, transparency, and anti-corruption allow enterprises with strong accountability and transparency to leverage these systems to enhance efficiency, reduce fraud risks, and improve profitability and reputation. Likewise, policies that encourage investment in strategic sectors enable independent boards to make objective, long-term decisions that optimize financial returns and align with regional development goals.

In this context, government policy acts as a catalyst rather than a substitute. It does not replace the need for robust internal governance but strengthens its impact by creating an environment in which good governance practices can generate maximum value.

Government policy also moderates the relationship between transformational leadership and business performance, with a path coefficient of 0.115 and a p-value of 0.025, thereby supporting H7. This indicates that a supportive policy environment enhances the positive impact of transformational leadership on organizational performance.

Transformational leadership creates an internal climate conducive to change, innovation, and high performance. However, the extent to which this leadership can be translated into concrete performance outcomes depends on the external constraints and opportunities defined by government policies. Drawing again on Contingency Theory, transformational leadership is not universally effective in all environments. ³⁵ Its success is contingent upon situational conditions, such as regulatory flexibility, autonomy in decision-making, and the availability of incentives for innovation. In a rigid, highly bureaucratic, or unstable policy environment, even highly inspiring leaders may find it difficult to implement strategic initiatives. Conversely, when policies provide room for experimentation, decentralization, and performance-based incentives, transformational leaders can fully leverage their influence to drive organizational change. ⁷¹

For regional-owned enterprises, this interplay is particularly visible. When local governments introduce policies promoting digitalization, service innovation, or performance-based budgeting, transformational leaders can use these frameworks as platforms to articulate a compelling vision, mobilize employees, and implement change. This, in turn, improves key dimensions of business performance such as operational excellence and customer satisfaction.

In practical terms, government policy acts as an enabler that allows transformational leadership to be expressed in concrete organizational practices. By aligning regulatory frameworks with the need for innovation, flexibility, and accountability, policymakers create conditions where transformational leaders can translate their vision and relational capital into measurable performance gains.

Finally, the results show that government policy significantly moderates the relationship between business strategy and business performance, with a path coefficient of 0.168 and a p-value of 0.040. H8 is therefore supported. This suggests that the effectiveness of business strategy in enhancing performance is strengthened when it is implemented within a supportive policy environment.

In line with Contingency Theory, strategic success is not determined solely by internal choices but also by the alignment between those choices and external conditions. ³⁵ For regional-owned enterprises, strategies focused on innovation, market expansion, or diversification must be consistent with regional development plans, sectoral regulations, and fiscal policies.

Supportive government policies, such as incentives for innovation, simplified licensing processes, or programs to promote local products, can magnify the positive impact of strategy on performance. Conversely, misaligned or restrictive policies can dampen the effectiveness of even well-designed strategies.

Overall, the findings highlight that business strategy and government policy must be viewed as interdependent rather than separate domains. Strategic planning in regional-owned enterprises should be closely attuned to the evolving policy environment to maximize performance outcomes. A supportive policy framework acts as a reinforcing mechanism that allows strategic initiatives to generate stronger and more sustainable improvements in business performance. ⁴⁹

This study involved human participants and was conducted in accordance with the ethical principles of the Declaration of Helsinki. Prior to participation, all respondents were provided with a standardized verbal script explaining the study’s purpose and procedures, confidentiality and data protection, voluntary participation, and the right to refuse or withdraw at any time without consequences. Ethical approval was granted by the Ethics Committee of Universitas Brawijaya (Approval No. 06218/UN10.F0301/B/PP/2025).