Chapter 11: The Joint Effect of Top Management Team Heterogeneity and Competitive Behavior on Stock Returns and Risk
11 The joint effect of top management team heterogeneity and competitive behavior on stock returns and risk Margaret Hughes-Morgan, Walter J. Ferrier, and Giuseppe (Joe) Labianca Members of the top management teams (TMTs) of competing firms are responsible for executing an unending series of competitive moves and countermoves meant to attract customers, keep rivals off balance, and make their own firms profitable. These competitive actions and responses, including price cutting, introducing new products, marketing campaigns, capacity expansions, and customer service improvements, are the overt manifestations of the TMT’s cognitive and experiential breadth and its strategic decision-making process. Indeed, effectively implementing a series of competitive moves depends on the ability of the TMT to monitor the environment, navigate obstacles, define and exploit opportunities, develop and select potential competitive moves, and deftly pilot the firm through the currents of competitive rivalry and retaliation. As suggested by a substantial body of empirical research on upper echelons, the TMT influences a wide range of organizational processes and outcomes (Finkelstein and Hambrick, 1996; Carpenter et al., 2004). With specific regard to the TMT’s influence on competitive actions, the burgeoning stream of research in strategic management known as competitive dynamics has found, for example, that TMTs characterized by high levels of cognitive and experiential heterogeneity are more likely than their heterogeneous counterparts to proactively initiate competitive actions and quickly respond to rivals’ actions (Hambrick et al., 1996). This research has also found that heterogeneous TMTs typically carry out complex (as opposed to simple) attacks against rivals...
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