Chi, N.-W., Chung, Y.-Y., & Tsai, W.-C. 2011.  How do happy leaders enhance team success?  The mediating roles of transformational leadership, group affective tone, and team processes.  Journal of Applied Social Psychology, 41(6), 1421-1451

A large body of research exists on "employee happiness" and the impact leaders have in influencing it.  Who hasn't been affected by a leader in a bad mood?  However, less is known about the relationship between positive leader moods and subsequent team performance.

In "How do happy leaders enhance team success," Chi, Chung, and Tsai explore two mediating mechanisms in this relationship: transformational leadership and positive group affective tones.  Their first hypothesis is that "leader positive moods will be positively related to transformational leadership behaviors."  It is thought that transformational leaders should enhance team performance through the facilitation of team processes, such as team goal commitment (I.e., members' determination to achieve a goal), team satisfaction, and team helping behavior (i.e., voluntarily helping others in work-related areas).

The 2nd hypothesis (part a) sets out that "team goal commitment will mediate the relationship between transformational leadership and team performance."  Several studies have found that when team members who are committed to a goal typically dedicate more effort in trying to achieve that goal, which results in higher performance.  Transformational leaders should, then, help to increase team goal commitment.

Similarly, part b of the 2nd hypothesis posits "team satisfaction will mediate the relationship between transformational leadership and team performance."  Past studies have found that highly satisfied team members are more likely to engage in team activities and try to help the team perform.  Positive leaders should, then, help team satisfaction

According to the authors, hypothesis 3 states that "leader positive mood will be positive group affective tone."  Central to this idea is the concept of "emotional contagion" - "the processes involved in transferring the moods and emotions of one individual to other individuals."   Hence, positive leaders should positively affect the transient moods of the group

To assess these hypotheses, the authors sampled 86 leaders and 365 team members from 85 retail sales teams in five different Taiwanese insurance firms.  Team members were primarily female, with ages ranging from 21-30, and tenure in the firm of nearly three years (with tenure on the team around two and a half years).  Nearly three-quarters of the sample possessed a university degree.  Members were given some questionnaires contained a variety of scales that were used to measure the items above.

Using structural equation modeling to assess the data, the results confirmed the hypotheses stated above.

Implications for HR
1.  Given the impact positive leader moods have on improving team performance, selecting the right leader is critical. 
2.  Greater investment in emotional training might be appropriate so that leaders can better understand the role their moods might have on their subordinates.
3.  While personality tests are perceived by some as suspect, team leaders who score high on conscientiousness and extraversion might be given greater weight when choosing a leader for certain tasks.