The effects of top management team strategic cognition on corporate financial health and value: an interactive multi-dimensional approach

Attah-Boakye, Rexford; Costanzo, Laura A.; Guney, Yilmaz; Rodgers, Waymond

Abstract

The upper echelons theory posits that the values, personalities, experience and education background of the top management team (TMT) affect both executives’ strategic cognition and corporate outcomes. Since TMT members differ in their cognitive structures, as also acknowledged by the presence of managerial biases and irrationalities in the behavioural finance theories, policy makers and scholars are saddled with the problem of identifying specific cognitive elements that can secure optimum organisational outcomes. Conceptual approaches or linear relationships between TMT strategic cognition (TMT-SC) and outcomes are unable to capture the complex interdependencies among TMT-SC, TMT attributes and performance. We propose and empirically test a dynamic multi-dimensional TMT-SC model. Using handpicked UK company panel data, we provide robust empirical evidence that extends our understanding of the theory. Our PLS-SEM analyses show that heterogeneity in TMT academic and professional qualifications, and work experience alone cannot provide optimal benefits to organisations. However, when they are combined with other TMT cognitive factors such as social networking, innovativeness and risk-taking levels, these aspects appear to improve firm value and financial health.

Citation

Attah-Boakye, R., Costanzo, L. A., Guney, Y., & Rodgers, W. (in press). The effects of top management team strategic cognition on corporate financial health and value: an interactive multi-dimensional approach. The European journal of finance, https://doi.org/10.1080/1351847X.2021.1977360

• Journal Article Type: Article
• Acceptance Date: Aug 26, 2021
• Online Publication Date: Sep 15, 2021
• Deposit Date: Sep 28, 2021
• Publicly Available Date: Mar 16, 2023
• Journal: European Journal of Finance
• Print ISSN: 1351-847X
• Electronic ISSN: 1466-4364
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1080/1351847X.2021.1977360
• Keywords: Firm solvency and value; Risk appetite; Human capital; Strategic cognition; Upper echelons theory; Behavioural finance
• Public URL: https://hull-repository.worktribe.com/output/3842320