Top management team faultlines and corporate violations in China: the internal governance perspective

Whether environmental responsibility can promote corporate performance has always been a focus of debate in theory and practice. We address the dispute regarding the effect of environmental responsibility by focusing on small and medium‐sized enterprises (SMEs) in China. Furthermore, based on team faultline theory, we argue that top management team (TMT) faultlines and bankruptcy threat combine to affect the relationship between environmental responsibility and long‐term performance in SMEs. Using data from 410 Chinese companies listed on the Growth Enterprise Market (GEM) during 2011–2020, we find that SMEs that engage in more environmental responsibility tend to have worse long‐term performance. Additionally, this relationship varies depending on the conditions of TMT composition (i.e., faultlines) and situation (i.e., bankruptcy threat). Specifically, when the bankruptcy threat is high, TMT faultlines negatively affect the relationship between environmental responsibility and long‐term firm performance. However, TMT faultlines positively affect this relationship when the bankruptcy threat is low. This paper sheds new light on corporate environmental responsibility by adopting a theoretical perspective of TMT faultlines and identifying the specific situations in which TMT faultlines act.

Driven by the theory of sustainable development, Chinese firms have gradually realized the importance of ESG disclosure. Executives play a core role in ESG decision‐making, but whether and how top management team (TMT) faultlines affect ESG disclosure has yet to be systematically discussed. Based on the attention‐based view and faultline theory, we select 6456 observations of 910 Chinese A‐share listed firms from 2012 to 2021 as the research object to empirically test the above critical practical issues that have not been fully answered. We find that TMT information‐based faultlines improve firms' ESG disclosure, but TMT social category faultlines reduce firms' ESG disclosure. In addition, the internal mechanism test showed that the TMT's future‐oriented attention plays a mediating role in the above relationship. Finally, we also find that institutional shareholding enhances the positive impact of the TMT's future‐oriented attention on ESG disclosure. This study enriches the literature on TMT faultlines and ESG disclosure, demonstrating that the composition of the TMT and its attention allocation are important factors for promoting firms' ESG disclosure. The conclusions of this study can help firms strengthen their ESG disclosure by building efficient TMTs and provide important implications for firms to better fulfill their ESG responsibilities.

Synopsis The research problem This study examined whether and how top management team (TMT) fault lines formed by diversity and division affect stock price crash risk (hereafter, crash risk). Motivation Prior studies have documented how a single characteristic or the demographic diversity of managers affects real economic activities. However, TMT fault lines, formed by the structure of executives’ demographic diversity, remain untapped in crash risk research. Given the potential monopoly of the TMT on information, it is important to determine whether TMT fault lines influence the distribution of bad news. This study therefore explored how TMT fault lines reduce crash risk through the private leakage of bad news by subgroups and the moderating role of analysts in this process. The test hypotheses We hypothesized that firms with a strong TMT fault line have low stock price crash risk. Moreover, subgroups divided by TMT fault lines have a greater chance of leaking bad news when firms are followed by more analysts, thereby reducing the stock price crash risk to a greater extent. Target population We examined 19,228 annual observations of Chinese publicly listed firms from 2008 to 2021. Adopted methodology We applied ordinary least squares (OLS) regression and moderation analysis to our study. Analyses We evaluated the microgovernance factors affecting crash risk from a novel perspective — internal TMT conflict. First, we performed regression analysis on a sample of Chinese publicly listed firms to determine whether TMT fault lines reduce crash risk and the effect of analysts on this relationship. Second, we performed cross-sectional variation tests for the main regression. Finally, we investigated the effect of a CEO-CFO coalition on crash risk, given that the unequal status of subgroups may reduce the monitoring capacity of any subgroup in a weaker position. Findings We found that TMT task-related fault lines are negatively associated with crash risk and positively moderated by analysts. Meanwhile, the TMT biodemographic fault lines do not have a significant influence on crash risk. We also demonstrated that the monitoring effect of TMT task-related fault lines is stronger when external governance is weaker. Finally, additional analysis implies that the monitoring effect of a CEO-CFO coalition fault line remains effective, but this effect is weaker.

Digital transformation (DT) is widely recognized as an essential driver for achieving the sustainable development goals (SDGs). However, empirical evidence regarding the effect of DT on sustainable development performance (SDP) is mixed, and the boundary conditions merit further investigation. Drawing upon organizational information processing theory, this research examines the influence of DT on SDP, specifically focusing on economic sustainability and environmental and social (E&S) sustainability. We also delve deep into the moderating role of top management team (TMT) faultlines (relationship‐related faultlines and task‐related faultlines). This research comprises an analysis of data collected from Chinese manufacturing firms spanning the period 2012–2021. The empirical results reveal that DT can positively affect E&S sustainability but negatively impact economic sustainability. TMT faultlines play a dual role in this association, with TMT relationship‐related faultlines exacerbating the negative effects of DT on economic sustainability, and TMT task‐related faultlines enhancing the positive impacts of DT on E&S sustainability, as well as mitigating the digitalization paradox. In addition, our results do not support the notion that TMT relationship‐related faultlines moderate the relationship between DT and E&S sustainability. This research contributes to the digitalization paradox and faultline literature by highlighting the distinct moderation mechanisms of TMT faultlines. These findings provide insights for managers in navigating the TMT subgroup dynamics and better supporting the success of digital sustainability transformation.

Top management team faultlines and firm performance: Examining the CEO-TMT interface

Balancing diversity and control: Top management team faultlines, CEO power, and innovation persistence in family enterprises

Merger and acquisition (M&A) premiums play a significant role in firm performance, but existing literature shows inconsistent findings regarding their specific impact.Based on a systematic review of prior researches, this study analyzes the nonlinear inverted U-shaped effect of acquisition premiums on firm performance, as well as the moderating role of top management team (TMT) faultlines (including task-related faultlines and bio-demographic faultlines).Several propositions of important theoretical and practical value are proposed, and a theoretical model is constructed to illustrate the relationship among acquisition premiums, firm performance, and TMT faultlines.

Research on the relationship between top management team (TMT) faultlines and firm performance has been equivocal, mainly because the underlying mechanisms that drive this relationship remain large...

Government requests and societal expectations have pressured high-polluting companies to focus on corporate social responsibility strategies. Using the upper echelons theory as a theoretical framework, we investigated how top management team (TMT) faultlines influence corporate social performance (CSP) based on data from 212 high-polluting companies. The results showed that CSP can be improved by reducing corporate social irresponsibility (CSiR), knowledge-based faultlines have a U-shaped effect on CSiR, and there is a knowledge-based faultline critical point. This implies that knowledge-based faultlines can improve CSiR before reaching this critical point. Additionally, medium-strength knowledge-based faultlines are more conducive to improving irresponsible behavior. CEO power plays a significant moderating role in the relationship between TMT faultlines and CSiR and slows the U-shaped effect of knowledge-based faultlines on CSiR. These findings could help enterprises optimize team structures, adjust corporate social responsibility strategies, and maintain sustainable development in high-polluting sectors.

We investigate why some acquirers value targets’ technological relatedness (i.e. similarity and complementarity) more than others. We propose that the importance of technological relatedness as a target selection criterion is influenced by the extent to which an acquirer Top Management Team is divided into subgroups based on managers’ demographic characteristics (i.e. faultlines). That is because an acquirer Top Management Team’s understanding of technological relatedness depends on the team’s information processing capabilities, driven primarily by Top Management Team faultlines. Our analysis of 94 realized acquisitions among 2082 potential acquisition matches in high-technology industries shows that while both technological similarity and complementarity increase the likelihood of an acquisition match, only the impact of technological complementarity is affected by Top Management Team faultlines. Specifically, we find that Top Management Teams with moderately strong divisions between subgroups pay more attention to technological complementarities between their firm and potential acquisition targets than Top Management Teams with very strong or weak divisions.

IntroductionIntegrating faultline theory and the attention-based view, this paper explores the impact and process mechanisms of two types of faultlines (i.e., task-related faultlines and relationship-related faultlines) within top management teams (TMTs), specifically on corporate industrial diversification.MethodsBased on the unbalanced panel data of Chinese A-share non-financial listed firms from 2008-2021, this study uses the fixed-effects model for hypothesis testing.ResultsFirst, task-related TMT faultlines promote corporate industrial diversification, while conversely, relationship-related TMT faultlines inhibit corporate industrial diversification. Second, task-related TMT faultlines promote firms’ strategic attentional breadth, while conversely, relationship-related TMT faultlines inhibit firms’ strategic attentional breadth. Third, strategic attentional breadth plays a partially-mediating role in the relationship between both types of TMT faultlines and firms’ industrial diversification.DiscussionThis study extends the research related to corporate industrial diversification based on micro-level explanatory mechanisms, and also provides implications and guidance for the rational allocation of TMT and firms’ industrial diversification management practices.

ABSTRACTWhile theory and research indicate that top management team (TMT) attributes play a crucial role in shaping responsible practices, how and when TMT faultlines affect environmental, social, and governance (ESG) performance remains an open question. This study aims to fill this research gap by integrating social categorization theory with the faultline literature. Using a sample of Chinese listed firms over a 12‐year period, our findings indicate that TMT faultlines can significantly inhibit ESG performance, and managerial myopia is the primary channel through which the negative effect operates. In addition, our study reveals that negative attainment discrepancy significantly amplifies the inhibitory effect of TMT faultlines on ESG performance. Intriguingly, this inhibitory effect is mitigated in firms with strong Confucian culture. Our study also reveals variations in the impact of TMT faultlines on ESG performance concerning the type of faultlines and the level of industry competition. These findings not only contribute to the literature on TMT faultlines and upper echelons but also provide valuable guidance for managers in adeptly navigating the dynamics of TMT composition.

We develop and test a theoretical model to investigate the effects of faultlines within the top management team (TMT) on corporate financial fraud. We propose that TMT faultlines can generate mutual monitoring among factional subgroups in the executive suite, which reduces fraudulent behavior. We also examine the contingent roles of subgroup configuration and the TMT members’ tenure overlap in shaping the relationship between TMT faultlines and financial fraud. The mutual monitoring effect is likely to be stronger when the TMT has a balanced subgroup configuration and shorter TMT members’ tenure overlap. We test our argument in the context of publicly listed firms in China. This article extends the mutual monitoring perspective of corporate governance and has important research implications for the corporate financial fraud literature.

Although upper echelons scholars have drawn from the demographic faultlines concept to study top management team (TMT) subgroup dynamics, the effects of TMT faultlines on competitive behavior and performance outcomes have not been well documented. To gain greater insight, we develop a model that connects TMT faultlines, CEO-TMT power disparity, competitive behavior, and firm performance. We hypothesize that TMT faultlines and CEO-TMT power disparity jointly determine a firm’s competitive aggressiveness and simplicity, and these two competitive behaviors influence firm performance. Using a sample of 295 U.S. firms in 146 industries from 2000 to 2013, our findings indicate that (a) TMTs with strong faultlines take fewer and simpler competitive actions, and CEO-TMT power disparity further worsens the negative effect on the volume of competitive actions, and (b) fewer and simpler competitive actions benefit short-term firm performance; however, they hurt the long-term firm performance trend. These findings contribute to the upper echelons and competitive dynamics research and suggest important managerial implications.

This study empirically analyzes the impact of management capabilities on corporate environmental performance and the moderating role of top management team faultlines including task-related faultlines and bio-demographic faultlines in the Chinese context. This study uses a sample of 163 Chinese chemical firms and hierarchical regression analysis to test the proposed hypotheses. The results show that management capabilities have a significant and positive influence on environmental performance of the firms. In addition, top management team task-related faultlines have a significant and positive moderating effect on the relationship between management capabilities and environmental performance of the firms, whereas top management team bio-demographic faultlines have a significant and negative moderating effect on the relationship between management capabilities and environmental performance of the firms. According to the results, this study puts forward some theoretical and practical implications. This study contributes to the literatures on the top management team faultlines and environmental management, especially to the literatures on the mechanism for how management capabilities influence corporate environmental performance.