Upper Echelons and Board Characteristics of Turnaround and Nonturnaround Declining Firms

Abstract Despite the publication of a number of studies examining the top management team (TMT) and board characteristics of failing firms, empirical studies of how turnaround firms differ from failing firms on such characteristics are scarce. To examine this understudied issue, we use a matched-pair sample to test whether turnaround and nonturnaround declining firms have significant differences in board composition, board size, CEO duality, TMT size, and TMT change. The results indicate that turnaround firms are more likely to have CEOs that are also board chairs, medium-sized boards, and greater outsider control of the board. Also, by the end of their recoveries, turnaround firms have TMTs employing a significantly smaller proportion of their pre-decline top managers as compared to nonturnaround firms. Overall, these findings imply that turnaround firms develop strategic decision-making structures that are fast yet influenced by outside perspectives.

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