The Impact of TMT Tenure Heterogeneity on Innovation Efficiency of Declining Firms

Most firms will experience decline in their development process. The demand contraction and COVID-19 have exacerbated a firm’s performance. Under the dilemma of resources reduction and recovery, the declining firm pays more and more attention to the efficient utilization of limited resources, especially of the innovation resources. It attempts to achieve turnaround through CEO substitution, adjustment of ownership structure, innovation-oriented and other strategies. Based on upper echelon theory, using the data of A-share listed manufacturing firms in Shanghai and Shenzhen from 2015 to 2019, the impacts of TMT tenure heterogeneity and ownership concentration on the innovation efficiency were investigated. The results show that the TMT tenure heterogeneity promotes the innovation efficiency of declining firms, while the relatively centralized ownership structure negatively moderates this effect. The robustness analysis of variable replacement and the solving of endogenous problem also further support these results. This study not only extends the application of upper echelon theory, but also provides practical guidelines for declining firms to replace top management members and to dilute equity to achieve recovery.