New Paradigm of Behavioral Finance in Islamic Banks: the Role of Leadership to Facilitate Creative Behavior

The purpose of this study is to investigate the transformational leadership represented by its dimensions (Idealized Influence, Inspirational Motivation, Intellectual Stimulation, and Individualized Consideration) and its impact on the Islamic banks' creative behavior in the Kingdom of Bahrain. Since the study of Debondt & Thaler, (1985) that introduced evidence on the effect of the cognitive biases on the stocks mispricing due to over/under reactions by the investors after receiving market related information, the behavioral finance has been involved in other financial research areas. Hence, the research applied the descriptive-analytical method to answer the research questions and test its hypotheses. The research society included all employees of the Islamic banks in the Kingdom of Bahrain. Overall, 317 employees from the Islamic Banks in Bahrain responded. The analysis was conducted using multiple and simple leaner regression to test the hypotheses. The results indicated a statistically significant effect of transformational leadership on creative behavior. The research has led to some recommendations, including increasing and developing managers' practices for ideal impact as one of the dimensions of transformational leadership through developing future vision capabilities, overcoming self-interest, and acting in a typical way that motivates employees to emulate them. It is also necessary for Islamic Banks to adopt and implement transformational leadership and all its dimensions, supporting their employees' creative behavior and developing their creative abilities.