Strategic decisions are derived from the reflections and attributes of the executives and play a crucial role in strategic outcomes. Based on previous research in the field of strategic management, executives’ attributes have a significant influence not only on various strategic decision-making processes (Goll and Rasheed, 2005; Hambrick and Mason, 1984) but also on the strategic outcomes of innovation (Miller and Toulouse, 1986). Following the Upper Echelons Theory, we argue that the demographic characteristics of the executives bring cognitive base and values to the strategic decision-making process and strategic outcomes. Building on previous theoretical and empirical evidence, we propose a mediation model where the executives’ characteristics affect how the strategic decision-making processes are pursued and how firms’ innovate. Specifically, we expect that the strategic decision-making processes of financial reporting and rule formalization to meditate the relationship between executives’ characteristics and firm’s innovation.
Thus, we theorize that:
Hypothesis 5: Strategic decision making processes of financial reporting and rule formalization mediate the effects of executives’ characteristics on innovation.
With these five hypotheses articulated, we can now describe the context to which they will be applied and the methods used for testing them.