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

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

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.

Firm solvency and value, behavioural finance, human capital, risk appetite, strategic cognition, upper echelons theory
1351-847X
1-32
Attah-boakye, Rexford
95848ebd-60ba-44ad-a9cf-bd13fec75dee
Costanzo, Laura A.
bce28c22-8b70-4176-b523-4e2f59169baf
Guney, Yilmaz
47560a2d-52f0-434d-a75c-eb120bc7cd06
Rodgers, Waymond
c8e0b35a-9efc-4082-b9e9-659047c441ca
Attah-boakye, Rexford
95848ebd-60ba-44ad-a9cf-bd13fec75dee
Costanzo, Laura A.
bce28c22-8b70-4176-b523-4e2f59169baf
Guney, Yilmaz
47560a2d-52f0-434d-a75c-eb120bc7cd06
Rodgers, Waymond
c8e0b35a-9efc-4082-b9e9-659047c441ca

Attah-boakye, Rexford, Costanzo, Laura A., Guney, Yilmaz and Rodgers, Waymond (2021) The effects of top management team strategic cognition on corporate financial health and value: an interactive multi-dimensional approach. European Journal of Finance, 1-32. (doi:10.1080/1351847X.2021.1977360).

Record type: Article

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.

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More information

Accepted/In Press date: 26 August 2021
e-pub ahead of print date: 15 September 2021
Keywords: Firm solvency and value, behavioural finance, human capital, risk appetite, strategic cognition, upper echelons theory

Identifiers

Local EPrints ID: 451610
URI: http://eprints.soton.ac.uk/id/eprint/451610
ISSN: 1351-847X
PURE UUID: 08359384-d304-43b3-a212-19c540e2c980
ORCID for Laura A. Costanzo: ORCID iD orcid.org/0000-0002-7197-6778

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Date deposited: 14 Oct 2021 16:31
Last modified: 17 Mar 2024 06:50

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Contributors

Author: Rexford Attah-boakye
Author: Yilmaz Guney
Author: Waymond Rodgers

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