Apportioning slices of a growing pie : Examining the influence of Top Management Team (TMT) credentials on firm value creation and its distribution between the firm's shareholders and it's TMT
Creators: name: Joachim Kock, Carl
Publisher: name: Zenodo
Year: 2021
Subjects: Audit practice management
Efficiency
Executive education
Firm value creation
Top Management Team (TMT)
Gestión de la práctica de auditoría
Eficiencia
Educación ejecutiva
Creación de valor de la firma
Equipo de Alta Dirección (EAD)

description: The role of the top management team (TMT) demands that executives be able to apply their skills, knowledge and experiences to create value for shareholders and in turn be rewarded for their results. Executive pay has grown exponentially over the last 30 years with CEO pay at large United States (U.S.) headquartered companies growing over 500% since 1990 (Bachelder, 2018) and from 1980 to 2015 the multiplier of CEO to worker pay has increased from 40 times to more than 335 times (Hermalin and Weisbach 2017). Although management literature today presents an abundant amount of research on value creation (Datta and Iskandar-Datta, 2014, Boyd, Bergh and Ketchen, 2010) executive compensation and firm performance, there is a gap in the literature addressing how the value that is created is then subsequently apportioned between the TMT and shareholders of the firm and to what extent TMT member human and social capital characteristics, such as work experience and education, may contribute to this value creation (Qian et al., 2017). This limitation makes it difficult for the board to determine whether or not the TMT members of an organization are compensated for the value that they have created for shareholders and whether or not TMT compensation plans are aligned properly with shareholder value.In response to this limitation, this study examines whether TMT’s with elite credentials (as defined by having education from top tier institutions or prior experience from top tier companies) are compensated more highly and/or create larger profits and the moderating effects that the degree of internationalization of the firm may have on this rent premium. I then extend the findings to examine whether TMT credentials influence the board and whether these TMT, in turn, receive a rent premium at the expense of shareholders when value is created (positive excess returns) and/or when valued is destroyed (negative excess returns). This dissertation draws on upper echelon, the resource-based view and absorptive capacity theories to extend the literature on top management team contribution to firm performance through consideration of causal ambiguity and the signaling effects that TMT member credentials have on the board’s distribution of rewards for performance. Detailed hypotheses are presented in the dissertation.To empirically investigate these research questions, detailed biographical information is coded for a large sample of top management teams by individual and byivcollective teams for a sample of S&amp;P 1500 financial services US firms over a 20-year period (2000 - 2019) to identify differentiated educational and work experience credentials that are indicative of skills which could lead to the creation of value. This dataset is developed using a combination of third-party data available from Center for Research in Security Prices (CRSP), Compustat, BoardEX, Bloomberg, S&amp;P and SEC Filings. Ordinary Least Squares (OLS) multi-variate regression analyses are used to assess the relationship between firm performance, compensation and TMT credentials.The findings are discussed in detail followed by an in-depth consideration of implications for both management literature and management practice. This dissertation contributes to management practice by shedding light on the effect which TMT credentials have on TMT compensation, TMT performance and the distribution of profits between TMT members and shareholders.