Purpose – The purpose of this paper is to investigate whether transformational leadership behavior is a function of the leader’s own self-respect and his/her evaluation of being capable, significant, and worthy (self-esteem). It is also tested whether transformational leadership is related to innovation success. Design/methodology/approach – Data were collected from 411 entrepreneurs and managing directors of small- and medium-sized Austrian companies. The proposed hypotheses were tested using structural equation modeling (PLS). Findings – A strong and significant relationship between self-esteem and transformational leadership was found. Furthermore, data analyses revealed that transformational leadership has a positive impact on innovation success. Originality/value – This study reveals the important but heretofore neglected role of self-esteem, defined as a manager’s overall self-evaluation of his/her competences, as an important predictor of transformational leadership.