Top Management Team Discretion, Strategic Flexibility And Firm Performance:the Moderating Role Of TMT Heterogeneity

In the context of China transition economy, how to obtain sustainable competitive advantage has become a focus in the field of strategic management research. Strategic flexibility can help companies adjust the strategy flexibly to make quick response to the changes of the environment. As one of the important source of competitive advantage in a dynamic environment for companies, strategic flexibility has been widely concerned. But the fact is that, not all the companies can successfully build strategic flexibility and get the competitive advantage as they wish. So how to build strategic flexibility in a dynamic environment receives widely academic discussions. Considering that top management team is the core of strategic decision-making of the companies, flexible strategic management, as the important part of strategic decision-making of the companies, must be determined by top management team. So this paper introduce the concepts of managerial discretion, and predict that the top management team managerial discretion have a positive effect on the strategic flexibility of the companies. When top management team has high managerial discretion, the ability to predict and scan the change of environment will be the key to construct flexible strategy. Top management team which has stronger ability to identify the environment is more willing to adapt to environmental changes. That is to say, with the combination of the willing and the discretion, top management team discretion and strategic flexibility will present a higher positive correlation. This paper introduces top management team heterogeneity as a moderator, and test top management team heterogeneity in three aspects:age, tenure and functional background. And we argue that age heterogeneity, tenure heterogeneity, and functional background heterogeneity positively moderate the relationship between top management team discretion and strategic flexibility.This paper studies the relationship between top management team discretion, strategic flexibility and firm performance, by selecting the data of China companies listed in the Shanghai Stock Exchange from 2007 to 2013. We use STATA and SPSS analysis the unbalance panel data which collected from CCCER CSMAR and WIND. The results are as following: High strategic flexibility is beneficial for firm performance. Furthermore, Top management team discretion have a positive effect on firm performance. More specifically, our results show that top management team age heterogeneity and team heterogeneity moderates the relationship between top management team discretion and strategic flexibility positively, and there is no moderate relationship between the interaction on top management team functional background heterogeneity.On the basis of upper echelons theory and dynamic capability perspective, this paper focuses on the relationship between top management team discretion, strategic flexibility and firm performance. And firm should construct strategic flexibility through the change of the composition of top management team and top management team discretion, and finally improve the performance.