The Influence Of TMT Faultlines On Corporate Industrial Diversification

Since the unrelated diversification boomed at the beginning of the reform and openingup period,Chinese enterprises have experienced related diversification by focusing on their major businesses,and then ushered in the industrial diversification boom characterized by“cross-border operation” which brought about by technological innovation,industrial integration and digital economy in the VUCA era today.At the same time,new challenges also persist.An important theoretical and practical question arises: What factors will affect the development of cross-industry diversification of Chinese enterprises in the VUCA era?Throughout the theoretical lineage of diversity research,scholars have conducted a large number of studies from different perspectives on the motivation of diversification and its relationship with corporate performance,etc.It can be seen that there is an increasing trend of diversification research,i.e.more attention to the micro-foundations of decisions of diversification and more emphasis on theory integration to explain the complexity of strategic decisions.However,in studies based on upper echelon theory(UET),insufficient attention has been paid to the internal structure of the TMT as one of the major decision-makers.In view of this,this paper integrates industry diversification research with UET and ABV and explores the relationship and mechanism of two types of faultlines(Relationship-related faultline and Task-related faultline)in the internal structure of TMT on the industrial diversification strategy of enterprises,drawing on the existing research results and combining them with the realistic background of Chinese enterprises.The following questions were raised:(1)How does the internal structure of TMT,especially the faultlines,affect the industrial diversification of Chinese firms? Do different types of TMT faultlines play different roles in influencing the degree of industrial diversification of firms?(2)How does the TMT attention breadth affect a firm’s industry diversification strategy,(3)How does the TMT faultline affect TMT attention breadth?(4)What mediating role does the TMT attention breadth play?(5)What is the moderating role of CEO and past performance in the relationship between the TMT faultlines and attention breadth and firm industry diversification? What is the moderating effect of organizational slack on the transformation of TMT attention into diversification strategies?To answer these questions,346 unbalanced panel samples involving 85 listed companies in the pharmaceutical manufacturing industry from year 2008-2018 were collected.Using descriptive statistics,correlation analysis and multiple regression analysis by Stata 15.1,the following research findings were mainly obtained The major conclusions are as follows:(1)Relationship-related faultlines have a negative effect on corporate industrial diversification.The greater the intensity of Relationship-related faultlines in TMT,the more likely it is that the aggregation of multiple characteristics within the executive team based on sociodemographic formation of subgroups,thus producing a phenomenon of high identification within subgroups and high differentiation between subgroups.It is also difficult to form a common focus of information sharing in TMTs,which has a negative impact on the degree of corporate industrial diversification.(2)The Task-related flatline inhibits the extent of the industrial diversification of a firm.Although it also forms subgroups with intra-group identification and inter-group differentiation,the task attributes of inter-group conflict objectively increase the attention breadth of the TMT,thus the higher the intensity of TMT task-related faultline,the more positive impact on the degree of industrial diversification of the firm.(3)The diversification decision of a firm is a product of the limited attentional capacity of the executive team and the structural organizational influence on attention,and the wider the TMT attentional breadth,the higher the degree of industrial diversification of the firm.(4)TMT task-related faultlines and relationship-related faultlines partially influence the degree of corporate industrial diversification by affecting TMT attention breadth,i.e.,TMT attentional breadth plays a partially mediating role.(5)CEO duality weakens the correlation between TMT relationship-related faultlines and the degree of industry diversification;however,the effects on the task-related faultline and corporate industrial diversification were not significant;meanwhile,CEO duality weakens the relationship between the two types of faultlines and TMT attention breadth.(6)Poorer past performance enhances the positive relationship between the TMT task-related faultline and the TMT attention breadth and industrial diversification respectively;(7)The organizational slack enhances the positive relationship between TMT attentional breadth and industrial diversification.By answering the above research questions,this study contributes to the following aspects: First,based on the upper echelon theory,this paper provides a new explanation for corporate diversification theory from the perspective of the internal structural characteristics of TMTs.These characteristics of the team affect the process of information sharing,group interaction and competitive game among the members,making it possible to portray and predict the impact of the phenomenon of “Harmony but different,sameness but not harmony”on group decision making.In view of this,this paper deepens the existing literature on the influence of top management teams on corporate diversification by examining the impact of internal structural characteristics of TMT faultlines on the degree of corporate diversification Second,integrating UET and ABV,this paper provides a micro-level explanatory mechanism for corporate diversification behavior.This paper introduces the micro-level concept of attentional breadth as a mediating variable for the influence of TMT faultlines on corporate diversification,which will be able to strongly explain the specific processes by which executive team characteristics affect diversification behavior.Finally,this paper contributes to the contextualization of the ABV by examining the factors influencing the structure of attentional allocation.In addition to examining the direct influence of the internal structural characteristics of the TMT on the attention breadth of the firm,this paper further explores the joint influence of the CEO structural position(CEO Duality)and the rule(past performance)on the attention breadth of the firm with the internal structural characteristics of TMT(taskrelated and relationship-related faultlines)respectively.This provides evidence for carving out and refining the interactions between factors influencing attention configuration.In addition,the findings of this paper are useful and instructive for the rational allocation of TMT and management practices of industrial diversification of enterprises.Finally,this paper also points out the shortcomings of the research and provides an avenue for future research.