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The article is an empirical study published in Academy of Management Journal. It uses multisource survey data from CEOs and top management team members in small-to-medium-sized firms and analyzes the proposed relationships using structural equation modeling. The study is cross-sectional and correlational, so its findings support associations rather than definitive causal effects.
Research question
How do transformational CEOs promote corporate entrepreneurship?
More specifically, the article asks whether the CEO-TMT interface explains how transformational CEO leadership shapes firm-level corporate entrepreneurship. The authors focus on four top management team characteristics: behavioral integration, decentralization of responsibilities, risk propensity, and long-term compensation.
Hypotheses
The article tests eight hypotheses.
Hypothesis 1 proposes that CEO transformational leadership is positively associated with top management team behavioral integration.
Hypothesis 2 proposes that top management team behavioral integration is positively associated with corporate entrepreneurship.
Hypothesis 3 proposes that CEO transformational leadership is positively associated with top management team decentralization of responsibilities.
Hypothesis 4 proposes that top management team decentralization of responsibilities is positively associated with corporate entrepreneurship.
Hypothesis 5 proposes that CEO transformational leadership is positively associated with top management team risk propensity.
Hypothesis 6 proposes that top management team risk propensity is positively associated with corporate entrepreneurship.
Hypothesis 7 proposes that CEO transformational leadership is positively associated with the extent to which top management team compensation is based on long-term firm performance.
Hypothesis 8 proposes that long-term compensation for the top management team is positively associated with corporate entrepreneurship.
Method
The study uses multisource survey data from small-to-medium-sized firms in New England.
The authors chose small-to-medium-sized firms because these firms have fewer management layers than large corporations, making the CEO-TMT interface easier to observe. These firms are also less constrained by external influences such as powerful outside boards, capital markets, and multi-division administrative structures.
The initial population contained 795 small-to-medium-sized firms identified through Dun & Bradstreet’s Million Dollar Database in 2004. The researchers contacted CEOs and received participation agreement from 193 CEOs. After excluding incomplete surveys, firms with less than a 50% within-team response rate, and CEOs with less than three years of tenure, the final sample consisted of 152 firms.
The final sample included survey responses from 152 CEOs and 416 top management team members. This represented 20% of the original sampling frame. Top management teams averaged 4.5 members, and on average 81% of each team responded. The sampled teams were relatively stable: 91.4% of surveyed TMT members had served on their teams for at least three years.
The CEOs had held their positions for an average of 14 years and had spent an average of 19 years with their firms. The sample firms employed an average of 62 people, had been in business for an average of 24 years, and reported median sales of $5.1 million. Most firms were privately held: 138 of the 152 sample firms were private.
The industry composition was mixed but concentrated. Manufacturing accounted for 56% of the sample, scientific and technical services for 18%, and construction for 12%. The remaining firms were spread across several other industries.
CEO transformational leadership was measured with the Multifactor Leadership Questionnaire Form 5X-Short. TMT members, excluding the CEO, rated the CEO on charisma, inspirational motivation, intellectual stimulation, and individualized consideration. The overall reliability for transformational leadership was high, with Cronbach’s alpha = .90.
Behavioral integration was measured with a nine-item scale capturing collaboration, information exchange, and joint decision making among TMT members. Reliability was high, with alpha = .90.
Decentralization of responsibilities was measured with a seven-item scale capturing the degree to which the CEO decentralizes decision making over operational and tactical responsibilities. Reliability was high, with alpha = .92.
Risk propensity was measured with a five-item scale after one reverse-scored item was dropped because of low fit. Reliability was acceptable, with alpha = .78.
Long-term compensation was measured with a three-item scale assessing the extent to which executive compensation focuses attention on long-term firm goals and long-term results. Reliability was high, with alpha = .85.
Corporate entrepreneurship was measured using Zahra’s scale covering innovation, venturing, and strategic renewal. One strategic renewal item was dropped because it was not applicable to many firms. The final corporate entrepreneurship measure used 15 items and had reliability of alpha = .88.
The authors also included several control variables: firm size, firm age, TMT size, average TMT tenure, TMT tenure diversity, education diversity, functional background diversity, CEO tenure, unabsorbed slack, past firm performance, industry type, and environmental uncertainty.
The study used maximum-likelihood structural equation modeling. The authors first tested the measurement model with confirmatory factor analysis and then compared nested structural models. The measurement model fit was acceptable: chi-square = 679.50 with 422 degrees of freedom, CFI = .91, IFI = .91, TLI = .91, and RMSEA = .05.
Results / key findings
The study finds that transformational CEO leadership is strongly associated with several top management team characteristics.
CEO transformational leadership was positively associated with TMT behavioral integration, supporting Hypothesis 1. The standardized coefficient was .61, p < .001, and transformational leadership explained an additional 29% of variance in behavioral integration beyond the covariates.
CEO transformational leadership was positively associated with decentralization of responsibilities, supporting Hypothesis 3. The standardized coefficient was .58, p < .001, with an additional explained variance of 26%.
CEO transformational leadership was positively associated with TMT risk propensity, supporting Hypothesis 5. The standardized coefficient was .27, p < .01, with an additional explained variance of 7%.
CEO transformational leadership was positively associated with long-term compensation, supporting Hypothesis 7. The standardized coefficient was .57, p < .001, with an additional explained variance of 25%.
The next part of the model tested whether these TMT characteristics were associated with corporate entrepreneurship.
Behavioral integration was not significantly associated with corporate entrepreneurship. Therefore, Hypothesis 2 was not supported. In the final model, the path from behavioral integration to corporate entrepreneurship was negative but nonsignificant.
Decentralization of responsibilities was positively associated with corporate entrepreneurship, supporting Hypothesis 4. In the full mediation model, the standardized coefficient was .26, p < .05. In the final partially mediated model, the coefficient was .23, p < .05.
Risk propensity was positively associated with corporate entrepreneurship, supporting Hypothesis 6. In the full mediation model, the standardized coefficient was .24, p < .05. In the final model, the coefficient was .22, p < .05.
Long-term compensation was positively associated with corporate entrepreneurship, supporting Hypothesis 8. In the full mediation model, the standardized coefficient was .34, p < .01. In the final model, the coefficient was .27, p < .01.
The study also found an unexpected direct effect of CEO transformational leadership on corporate entrepreneurship. This direct path was added in the partially mediated model and was positive and significant, with a standardized coefficient of .21, p < .05. This suggests that the CEO-TMT interface explains part, but not all, of the relationship between transformational CEO leadership and corporate entrepreneurship.
The final partially mediated model fit the data well: chi-square = 853.40 with 499 degrees of freedom, CFI = .92, IFI = .92, TLI = .91, and RMSEA = .05. The model explained 42% of the variance in corporate entrepreneurship. This was an improvement over the covariates-only model, which explained 27%, and the full mediation model, which explained 37%.
The correlation table also supports the broad pattern. CEO transformational leadership correlated positively with corporate entrepreneurship at r = .35, p < .001. It also correlated positively with behavioral integration, r = .52, p < .001; decentralization, r = .46, p < .001; risk propensity, r = .22, p < .01; and long-term compensation, r = .50, p < .001.
The article reports several robustness and post hoc analyses. First, the authors tested for common method bias in multiple ways and concluded that the core results were not significantly affected. Second, they reestimated the model excluding CEO scores from the TMT measures and found the same pattern of significant results. Third, they tested whether transformational leadership had an inverse U-shaped relationship with the TMT characteristics or corporate entrepreneurship, but found no curvilinear effects.
The authors also examined whether charisma alone explained the results. They did not find significant direct relationships between charisma and the model’s other core constructs. This supports the idea that transformational leadership should be treated as a broader construct rather than reduced to charisma.
A final post hoc analysis examined behavioral integration as a moderator. Although behavioral integration did not directly predict corporate entrepreneurship, it positively moderated the relationship between decentralization of responsibilities and corporate entrepreneurship. This suggests that decentralization may be more useful when the TMT is also behaviorally integrated. In practical terms, authority delegation works better when the top team also shares information, collaborates, and commits to joint decisions.
Overall, the evidence supports the article’s core argument: transformational CEOs promote corporate entrepreneurship partly by shaping the top management team’s structure, risk orientation, and compensation horizon. However, behavioral integration works differently than expected. It does not directly predict corporate entrepreneurship, but it may strengthen the effect of decentralization.
Practical implications
For managers, the study suggests that corporate entrepreneurship is not only a matter of having an innovative CEO. It depends on how the CEO shapes the top management team.
A transformational CEO can help create conditions for entrepreneurship by encouraging a clear vision, challenging assumptions, supporting follower development, and motivating executives to go beyond narrow self-interest. But the important managerial point is that this influence becomes powerful when it changes how the TMT operates.
The findings suggest that CEOs who want more innovation, venturing, and strategic renewal should decentralize meaningful responsibilities to their top managers. Senior managers are often closer to customers, product markets, technologies, and operational problems than the CEO. If they lack authority, they may recognize opportunities but be unable or unwilling to act on them.
The study also suggests that risk propensity matters. Corporate entrepreneurship involves uncertainty and delayed returns. A TMT that is too risk-averse may avoid product innovation, new ventures, and strategic renewal even when these activities are necessary for adaptation.
Long-term compensation is especially important. If top managers are rewarded mainly for short-term results, they may avoid entrepreneurial initiatives that depress short-term performance but create long-term value. The positive link between long-term compensation and corporate entrepreneurship supports the idea that incentives should match the time horizon of innovation.
The behavioral integration result is more nuanced. Simply having a collaborative top team is not enough to create corporate entrepreneurship. Integration may only become valuable when it is paired with authority. A top team that communicates well but lacks decision rights may not act entrepreneurially. A decentralized team that lacks integration may act in fragmented ways. The post hoc result suggests that the strongest configuration may be both decentralized and behaviorally integrated.
For practitioners, useful diagnostic questions include:
- Does the CEO communicate a compelling entrepreneurial vision?
- Do TMT members have real authority over operational and tactical decisions?
- Are top managers encouraged to take reasonable risks, or mainly rewarded for avoiding mistakes?
- Is compensation tied to long-term firm performance rather than only short-term targets?
- Does the TMT share information and make joint decisions where needed?
- Are decentralization and integration aligned, or does the firm have either fragmented autonomy or centralized discussion without action?
- Is the CEO’s influence limited to speeches, or does it shape structure, incentives, and executive behavior?
Theoretical implications
The article contributes to upper echelons research by separating the CEO from the top management team more explicitly. Instead of treating the CEO as simply another member of the TMT, the study examines the CEO-TMT interface as a mechanism through which CEO leadership affects firm-level outcomes.
The article also contributes to corporate entrepreneurship research. It shows that corporate entrepreneurship is associated with specific TMT characteristics: decentralization of responsibilities, risk propensity, and long-term compensation. This supports the idea that innovation, venturing, and strategic renewal depend on the structure, values, and incentives of the senior team.
The study extends transformational leadership research by showing that CEO transformational leadership may influence firm outcomes indirectly through top team characteristics. This moves beyond simple CEO effect arguments and helps explain how leadership can become translated into organizational behavior.
The findings also suggest that transformational leadership may work through multiple pathways. The CEO-TMT interface explains part of the relationship, but the direct effect of transformational leadership on corporate entrepreneurship remains significant. This implies that other mechanisms may also matter, such as organizational culture, employee selection, middle-management behavior, or cascading leadership effects.
The behavioral integration finding is theoretically important because it complicates a simple “more integration is always better” view. Behavioral integration did not directly predict corporate entrepreneurship, but it strengthened the decentralization effect in post hoc analysis. This suggests that future theory should examine combinations of TMT characteristics rather than only isolated main effects.
Limitations
The study is cross-sectional and correlational. Although the theoretical model implies causal direction, the design cannot prove that transformational CEO leadership causes changes in TMT characteristics or corporate entrepreneurship.
Reverse or reciprocal causality is possible. For example, firms already engaged in corporate entrepreneurship may encourage CEOs to behave more transformationally, or a more entrepreneurial context may shape both CEO behavior and TMT characteristics.
The study focuses on small-to-medium-sized firms in New England. The findings may not generalize fully to large public corporations, firms in other countries, or organizations with more complex governance structures and multiple management layers.
The sample is mixed but heavily weighted toward manufacturing. Manufacturing firms represented 56% of the sample, while scientific and technical services represented 18% and construction 12%. Findings may differ in service, platform, digital, public-sector, or highly regulated contexts.
Corporate entrepreneurship was measured through survey responses rather than fully objective innovation outcomes. The authors did validate the measure by correlating it with sales growth for firms where data were available, but the main dependent variable remains perceptual.
The study uses structural equation modeling, which is appropriate for testing the proposed model, but it does not eliminate the limitations of survey data and cross-sectional design.
Behavioral integration was measured broadly. The null direct finding may mean that behavioral integration does not directly drive corporate entrepreneurship, or it may mean that only specific kinds of information sharing, collaboration, or joint decision making matter for entrepreneurial outcomes.
The study controls for several firm, team, and environmental factors, but unmeasured variables such as ownership culture, founder influence, board pressure, market turbulence, and industry technology cycles may also affect corporate entrepreneurship.
Future research
Future research could test the CEO-TMT interface with longitudinal data to examine whether transformational CEO leadership leads to later changes in TMT characteristics and corporate entrepreneurship.
Researchers could study whether the findings generalize to large public firms, multinational corporations, family firms, startups, and firms outside the United States.
Future studies could examine additional CEO-TMT mechanisms, such as TMT entrepreneurial orientation, psychological safety, conflict management, strategic consensus, or shared vision.
Another useful direction would be to study cascading effects. Transformational CEOs may influence TMT members, who then influence middle managers and employees. Multilevel research could show how entrepreneurial behavior spreads through the organization.
Future research could examine organizational culture as another mechanism. Transformational CEOs may promote corporate entrepreneurship not only through TMT structure and incentives but also by shaping norms around experimentation, learning, and change.
The behavioral integration finding deserves further study. Future research could examine when integration helps, when it slows action, and how it interacts with decentralization, authority, and strategic urgency.
Researchers could also use archival or objective measures of corporate entrepreneurship, such as patents, new product launches, new venture creation, R&D spending, strategic change announcements, or entry into new markets.
Finally, future studies could investigate how CEO leadership, TMT incentives, and corporate entrepreneurship interact under different levels of environmental uncertainty, technological turbulence, and competitive pressure.