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The study aims to closely look at the phenomenon of transformational leadership and the psychological capital of followers by using affective process theory (APT). It has empirically tested the mediation of the perceived emotional labor (EL) of a leader and susceptible emotional contagion (EC) of followers when studying the effect of transformational leadership on the psychological capital (PsyCap) of followers.

The method adopted was mixed methodology. The data were collected from the 120 respondents and their perception regarding the construct as identified by previous literature was captured through a structured questionnaire. The relationships and hypotheses were tested by the structural equation modeling (SEM) model using SMART PLS. Further 20 semi-structured interviews were conducted using a qualitative approach.

The current research has empirically shown how specific aspects of transformational leadership, i.e. individual consideration perceived by followers also show high use of perceived deep acting strategy. Deep acting EL strategy is impacting positive EC and positive EC is leading to higher PsyCap of followers generating more work efficacy, hope, optimism and resilience. Mediation of positive EC between Deep acting EL and PsyCap was also observed. In qualitative studies done with the participants, major themes that emerged were transformational leadership, EL strategies, EC and PsyCap.

In times of uncertainty and stress after the post-COVID scenario, employees are facing emotional burnout due to increased work pressure and workload. Transformational leadership has become very critical to manage the PsyCap of followers by using correct EL strategies. Leaders can focus on the optimism and resilience aspect of PsyCap.

The current research has taken affective process theory (APT) as a foundation to understand the connection between transformational leadership and the PsyCap of followers. The study has specifically picked up the fourth mechanism of affective linkage as suggested by Elfenbein (2014) called emotional recognition and seen how emotions are transferred from source (leaders) to recipient (followers). The research has contributed by empirically testing the mediation of the perceived EL of leaders and the susceptible EC of followers and how they affect the PsyCap of followers.