Boosting Firm Environmental Performance: The Roles of Top Management Team Functional Diversity, Environmental Disclosures, and Government Subsidy

Abstract

Contemporary organizations are actively striving to achieve a higher level of environmental performance (the extent to which the organization reduces and minimizes its negative impact on the natural environment). This pursuit is not only driven by the need to comply with governmental climate change regulations but also by the desire to gain a competitive advantage. While a limited number of studies have acknowledged the importance of top executives’ strategy-making on firms’ environmental performance, questions still persist regarding how the role structure of the top management team (TMT) promotes the disclosure of environmental policies, and subsequently enhances firm environmental performance. Based on the attention-based view and resource-dependency perspective, this study aims to examine how TMT functional diversity is beneficial for formulating better environmental disclosures, which in turn, is expected to increase environmental performance. Additionally, we explore the extent to which external resources (i.e., government subsidies) can strengthen this relationship. We employed an archival dataset from 406 Chinese manufacturing firms over a ten-year period (2010–2019) and tested a moderated mediation model. Our findings suggest that greater functional diversity within TMTs positively influences firm environmental performance through the improved environmental disclosures, and this indirect effect is amplified when firms receive higher levels of government subsidies. Our study contributes to the existing literature on environmental governance by demonstrating that (1) functional diversity within the TMT can predict more favorable environmental performance metrics; and (2) government financial support can particularly be a booster for the relationship between TMT environmental disclosures and firm environmental performance.