Integrating SEM, Wald test and ANOM to disentangle the effect of TMT functional background on strategic plans

Building on the upper echelon theory, this paper investigates the relationship between the functional background of the Top Management Team (TMT) and the strategic forward-looking disclosure in terms of both publication and quality of strategic plans. Specifically, it employs Structural Equation Modelling (SEM), along with the Wald test and Analysis of Means (ANOM), to disentangle the effects of the three specifications of functional background (i.e., output, throughput, and peripheral) on strategic plans. Analyzing a sample of 341 non-financial companies listed on the Milan Stock Exchange, the research assesses the quality of strategic plans through content analysis. The empirical evidence reveals that the TMT's functional background significantly influences the strategic forward-looking disclosure, with the peripheral functional background having the highest impact compared to the other specifications. This finding underscores the crucial role of managerial characteristics in enhancing the quality of strategic plans and suggests that firms should consider managers' functional expertise when making directors' appointments. In doing so, the paper not only contributes to theory and practice but also offers methodological advancements.