Bibliographic Details
| Title: |
As Time Goes By: The Signaling Role of Top Management Team Heterogeneity on Firm Outcomes. |
| Authors: |
Choi, Emily W.1, Kidwell, Virginie Lopez2, Markoczy, Livia Anna1, Jie Wu3 |
| Source: |
Academy of Management Annual Meeting Proceedings. 2016, Vol. 2016 Issue 1, p1-1. 1p. |
| Abstract: |
We investigate top management team (TMT) heterogeneity as a signal to investors about the quality of young firms. Specifically we test whether TMT heterogeneity confirms the initial beliefs about it as a signal. This self-confirming feedback would indicate conditions for a signaling equilibrium, which is a key condition for a signal to reliably distinguish between good and bad quality (Spence, 1973). Our results indeed show evidence of self-confirming feedback about TMT heterogeneity. Specifically, we find that investors support young firms with diverse TMTs (measured by increase market capitalization) despite the diverse TMTs' negative effect on firm performance (measured by return on assets); however, over time, we find that TMT heterogeneity becomes beneficial for firm performance, confirming the investors' initial beliefs about the signal. Additionally, over time as investors gain more information about the firms' quality through its performance they will rely less on TMT heterogeneity as a signal of such quality. Finally, we find that additional uncertainty that comes from environmental dynamism also plays an even more positive moderating role for TMT heterogeneity and investor support. Highlighted in our investigation is the importance of time when exploring the relationship between the composition of TMTs and firm outcomes. We conduct our empirical study on firms in China, where investors especially rely on TMT heterogeneity as a signal of firm quality. Finally, we discuss the implications of our findings for theory and practice. [ABSTRACT FROM AUTHOR] |
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| Database: |
Business Source Complete |
