Top Managers Diversity And Firm Performance:Moderation Of Average Age And Average Tenure

The effectiveness of top managers and its association with firm performance has always been a central focus in most research works in business management.Top managers are firm's resources that affect its performance.The upper echelons theory(UET)provides an empirical argument that top managers demographic characteristics(age,tenure,education,nationality,diversity)are good proxies for underlying traits and cognitive processes of top managers.Therefore,firm performance is a consequence of top managers characteristics.Previously,top management has been dominated by old executives but recently,the trend is changing,proportion of young managers on top teams is increasing.Since top management team is now composed of managers with different TMT attributes,it tends to reflect different values,attitudes and cognition.Given that strategic decision-making resulting from top managers interaction has significant effect on firm performance,it's important to understand the effect managers diversity in top management teams(TMT)on firm performance.Therefore,the aim of this study is to understand how top managers diversity affect firm performance under TMT micro level contexts(i.e.average age and average tenure)that may have some pro-founding influence on strategic decision-making on the relationship between top managers diversity and firm performance.The study used secondary data obtained from BVD Osiris database(source for dependent and control variables)and from African stock market database(source for independent and moderating variables)for a duration of ten years from 2008 to 2017,we used 63 listed firms from East African stock exchanges after dropping firms with missing data.Our analysis focus on top managers of the listed firms.To test the relationship between top managers diversity and firm performance,a modern methodology based on hierarchical linear modelling was used for our longitudinal dataset.After performing all preliminary tests(heteroskedasticity,multicollinearity,and model specification test),findings of fixed effect model show partial confirmation of our main effect hypotheses as measured by ROA than as measured by ROE.Indeed,the analysis indicated that average age of top managers moderates the relationships between age diversity,tenure diversity and firm performance.Similarly,average tenure moderates the relationship between nationality diversity and firm performance.Our study is one of the few studies which have used micro individual factors as contextual factors to examine the relationship between top managers diversity and firm performance.The significant main effect results and moderating results obtained using ROA adds additional evidence and knowledge on TMT diversity literature.Specifically,the novelty of our results comes from research method used-longitudinal research design and from dataset generated from developing countries,countries with different cultural background and with different levels of economic development from developed countries such as China,South Korea or US.These achievements have tried to resolve the existing black box paradox in the upper echelon literature.Lastly,our results have significant practical managerial contribution.Managerial contribution given in this study helps firms to improve human capital allocation and to build strong top management teams,the teams that will add values to decisions made by top managers to improve firm performance.Although many studies have investigated the impact of top managers diversity and firm performance,this study has introduced micro level variables(age average and average tenure)as moderators.Finally,the study has used dataset from East Africa,which itself is a unique because most TMT studies have used dataset from developed countries.