TMT Shared Leadership and Firm Performance: Investigating the Mediating Role of Absorptive Capacity

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 (Dezso 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; Wong et al., 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 firm (Cohen and Levinthal, 1990; Zahra and George, 2002). Yukl (2009) suggests that shared leadership and similar leadership theories have the potential to provide valuable insights on how the distributed influence of multiple leaders affects firm-level factors. Therefore, the suggestions propagated by researchers, such as Yukl (2009) and Carson et al. (2007), are directly addressed, and the influence of TMT shared leadership on absorptive capacity and firm performance is investigated. To this end, the mediating role of absorptive capacity on the relationship between TMT shared leadership and performance is examined using a sample of 129 firms in the software industry, and results suggest that absorptive capacity fully mediates the relationship. Further hypothesis testing suggests that TMT shared leadership positively relates to three underlying capabilities of absorptive capacity (i.e., acquisition, assimilation, and transformation) but not the exploitation capability. In all, this study contributes to the current TMT literature by empirically demonstrating that TMT shared leadership is related to performance via its relationship with the absorptive capacity of the firm. LITERATURE REVIEW AND HYPOTHESES Shared Leadership Upper echelons theory describes how the TMT influences the strategic positioning of the firm (Hambrick and Mason, 1984), suggesting that members of the TMT make strategic decisions that reflect their cognitive biases, values, and perceptions. …