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The purpose of this paper is to investigate the forces driving organizational innovation, particularly CEO transformational leadership as it affects external and internal social capital in top management teams.

Survey questionnaires were administered to 90 Chinese top management teams. Structural equation modeling was used to test the hypothesized relationships.

Both internal and external social capital mediated the relationship between transformational leadership and organizational innovation.

Organizations should strengthen internal and external capital of top management teams to reap maximal innovation outcomes from transformational leadership.

The findings contribute to the transformational leadership, social capital, and innovation literature first by showing how leadership influences innovation through largely neglected mechanisms – internal and external social capital. Second, a social capital focus challenges the tacit assumption that transformational leadership has only internal influences by showing that it potentially spills over to the external domain.