Top management team stability and corporate default risk: The moderating effects of industry competition and strategic deviance

Abstract

This study takes Chinese A‐share listed firms from 2007 to 2020 as samples to examine the impact of top management team (TMT) stability on corporate default risk. The research findings reveal that TMT stability significantly mitigates corporate default risk. Furthermore, industry competition significantly strengthens the inhibitory effect of TMT stability on corporate default risk, while strategic deviance notably weakens this inhibitory effect. Heterogeneity analysis results indicate that the inhibitory effect of TMT stability on default risk is more pronounced for non‐state‐owned enterprises, firms situated in regions with higher levels of social trust, and during periods of elevated economic policy uncertainty.

Top Management Team Stability and Corporate Innovation Sustainability

“…A stable TMT promotes the sustainability of innovation activities and the long-term development of the firm, supporting the view that TMT stability has positive economic impacts [19,24,25]. The existing research has demonstrated that executive team stability has a significant impact on firm performance, social responsibility, default risk, and debt structure [19,[26][27][28]. However, more research is needed on the impact of executive team stability on innovation sustainability.…”

“…This paper discusses the impact of the stability of TMT on the sustainability of enterprise innovation from a dynamic perspective, compensating for the deficiency that existing studies mainly focus on the influence of executives from a static perspective, such as the demographic characteristics [31][32][33]. Furthermore, the current research on TMT stability primarily considers the changes in team members and ignores the influence of subgroups within the management team [19,26,27]. This paper combines TMT stability with executive team subgroup differentiation and examines the moderating role of executive faultlines on the positive impact of TMT stability, which provides a more comprehensive focus on the impact of executive team characteristics on the enterprise and a deeper understanding of executive teams.…”

“…Zheng and Lin [42] and Huang et al [26] pointed out that maintaining the TMT's stability can help to promote corporate social responsibility performance. Liao et al [27] stated that a steady leadership team can lower the firm's default risk. Yao et al [28] found that a stable executive team is conducive to improving corporate debt structure and expanding debt financing options.…”

“…The current literature indicates that a stable TMT can improve corporate performance and competitive advantage [19,24,25], adhere to long-term value orientation [19], and actively assume social responsibility [26]. Furthermore, a stable TMT will lower firms' default risk and debt concentration [27,28], allowing them to cope with external uncertainties and receive more funding [18]. Therefore, it is necessary to advance the existing literature and explore the relationship between TMT stability and corporate innovation sustainability, as well as the corresponding influencing mechanisms.…”

“…The potential contributions of this study are as follows: First, this paper examines the impact of TMT stability on corporate innovation sustainability from a dynamic perspective, enriching the literature on upper echelon theory, which focuses primarily on the influence of executives' demographic characteristics [31][32][33][34][35] and pays insufficient attention to dynamic changes in the executive team. Second, the existing research focuses on the impact of TMT changes on corporate performance, social responsibility, and default risk [19,26,27] and only addresses team personnel changes, mostly disregarding the differentiation of subgroups within the team. This study compensates for previous studies' limitations by combining entire TMT changes to internal faultlines, contributing to a deeper understanding of the executive team characteristics.…”