Top team composition and corporate turnaround under environmental stability and turbulence

Abstract

Purpose

The purpose of this study is to empirically examine the effect of top management team (TMT) characteristics on corporate turnaround performance in declining firms under conditions of environmental stability and turbulence.

Design/methodology/approach

Theoretical hypotheses were developed and tested using data collected from 98 US manufacturing firms that experienced performance decline and turnaround during the periods 1990‐1994 and 1995‐2000 respectively. Data were collected from the COMPUSTAT database and annual filings and analyzed using a moderated regression analysis.

Findings

The results of moderated regression analysis indicate an adverse effect of long organizational tenure on corporate turnaround, especially in turbulent environments. Hence, if was found that the effect of top team composition on corporate turnaround varies depending on the environmental context.

Research limitations/implications

The study contributes to the ongoing corporate turnaround research by examining the interplay between TMT characteristics and turnaround performance under different environmental contexts. Consequently, the findings of the study suggest that the environmental context in which declining firms operate matter just as much as the nature and characteristics of their top team in determining the success of their turnaround attempt.

Practical implications

The results of the study shed some light on corporate governance issues, specifically on the importance of matching top management change efforts in declining firms with the respective environmental context.

Originality/value

The study contributes to the corporate turnaround literature by addressing the recent call for research in the TMT‐turnaround relationship under environmental contingencies (i.e. environmental stability/turbulence).

Citation

Abebe, M.A. (2010), "Top team composition and corporate turnaround under environmental stability and turbulence", Leadership & Organization Development Journal, Vol. 31 No. 3, pp. 196-212. https://doi.org/10.1108/01437731011039325