Top management team diversity and firm performance: exploring a function of age

Abstract

Purpose Based on socioemotional selectivity theory, the authors aimed to develop and test hypotheses that identify the direct effect of top management team (TMT) age diversity on firms’ financial performance (return on equity [ROE], return on assets [ROA]) and the interactive effect of TMT age diversity and TMT average age on firms’ financial performance. Design/methodology/approach The paper presents results from a quantitative study of 867 TMTs in Korean manufacturing firms. Multiple hierarchical regression analysis was used to test the hypotheses. Findings The results show that TMT age diversity had a negative and significant main effect on ROE but not on ROA. They also indicate that the negative relationship between TMT age diversity and firm performance (ROE) was attenuated when the members of TMTs were relatively older. Originality/value First, this study extends existing TMT research, which mainly focuses on macro factors, such as industry and environment, by using micro factors, including TMT age diversity and TMT average age. Second, this paper combines and extends previous TMT studies, which have been dominated by either “property” or “tendency”, by examining the interactive effect of the distributional property (diversity) and central tendency (average) of TMT age on firms’ financial performance. Finally, this study indicates that socioemotional selectivity theory may be useful to explain the link between TMT age diversity and firms’ financial performance.