The impact of TMT functional background on firm performance: Evidence from listed companies in China’s IT industry

The purpose of this paper is to discuss the influence of different aspects of top management team (TMT) functional background on short-term performance, long-term performance, innovation performance and oversea performance separately. This research aims to verify whether the social categorization theory and information and decision-making theory are applicable in listed companies of China’s information technology (IT) industry so as to provide key theoretical references for TMT enhancement ad corporate performance improvement.

This paper takes A-share listed companies in Shanghai Stock Exchange and Shenzhen Stock Exchange as its study subjects, and it chooses the data from 2004 to 2010 in all of the 105 companies in IT industry in terms of the classification of Wind Database. The stepwise multiple regressions were run utilizing the regression program in Statistical Product and Service Solutions (SPSS).

The research results show that the social categorization theory can better explain TMT’s influence on corporate performance. TMT functional heterogeneity does not contribute to improving corporate performance and shows significant negative influence on short-term performance and innovation performance in particular. Among the three basic functional backgrounds, TMTs dominated by “throughput” backgrounds show significant positive influence on short-term performance, long-term performance, innovation performance and overseas performance, and the influence turns out to be the largest among these three backgrounds. In terms of the three special professional experiences, top executives with overseas backgrounds have significant positive influence on all of short-term, long-term, innovation and overseas performances. Externally hired executives, however, would impede corporate innovation development, while those with government background would increase corporate overseas performance.

This paper analyzes the relationship between TMT functional background and corporate performance in a comprehensive way for the first time and then takes the lead in considering the dynamics and complexity of corporate performance as well as discussing the influence of TMT functional background on four corporate performances. This study not only supports the effect that the social categorization theory has on TMTs but also offers some inspirations on the development of China’s IT companies.