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The pivotal role of top management teams (TMTs) in crafting strategies, enabling innovation, and improving firm performance has been widely noted (Buyl et al, 2011; Hambrick and Mason, 1984; Mihalache et al, 2012, 2014). Within the strategic management field, TMT studies have sought to better understand the relationship between TMT characteristics and performance by examining the influence of team size (Haleblian and Finkelstein, 1993), education and work experience (Carpenter, 2002), social networks (Collins and Clark, 2003), gender representation (Dezsö and Ross, 2012), and numerous other characteristics of the executive team. More recently, research has highlighted the benefits of functional experiences among TMT members citing that the broad array of experience housed within the TMT has positive implications for firm performance (Menz, 2012). However, even though TMT members may have unique characteristics and diverse experience, how are such characteristics and knowledge transformed into profit-yielding outcomes? To address this issue, leadership within the TMT is examined and associated influences on firm capabilities and outcomes are investigated.
Although CEO leadership behaviors are shown to influence firm performance (Wang et al., 2011), the CEO is not necessarily the only top executive with influential leadership responsibilities. Based on the dominant coalition perspective (Cyert and March, 1963), strategic decision-making in organizations has been recognized to be a shared effort involving the collective cognitions and capabilities of the entire executive team (Hambrick, 2007). In TMTs, multiple members of the executive team are likely to share leadership roles creating a distribution of leadership responsibilities, or shared leadership, among the management team (Pearce and Conger, 2003; Pearce and Sims, 2002).
Carson et al. (2007) find that shared leadership is related to performance, yet how shared leadership influences firm performance remains to be explicated. To understand how firm performance is influenced by the TMT, a capability-based perspective is employed to suggest that the distributed leadership configuration of TMT members enables the firm to develop necessary capabilities, and through such capabilities, firm performance is altered. Specifically, the existing literature (e.g., Carmeli et al., 2011; Carpenter, 2002; Collins and Clark, 2003; Wongetal., 2011) is extended to suggest that when a TMT shares leadership responsibilities, the firm is better able to acquire, assimilate, transform, and exploit new knowledge, a process-oriented capability known as the absorptive capacity of the...