Top Management Team Diversity in Financial Services - The Influence of Functional and Demographic Diversity on Firm Financial Performance
Global Journal of Managment and Marketing Volume 3, Number 1, 2019
19 Pages Posted: 24 Feb 2020
Date Written: 2019
There has been exhaustive discussion on whether diversity in the TMT (Top Management Team) has an impact on the firm’s financial performance. This research will analyze data from 59 Fortune 500 Financial Services firms’ TMTs referencing Hambrick and Mason’s Upper Echelon theory and review the TMT members’ demographic composition as well as functional experience background attributes. We controlled for industry effects by focusing on the financial services sector, within which companies related to the banking sector are systemically essential to society. Another rationale for the focus on financial services is the degree with which this industry has been digitized, which we argue creates a more complex management environment. This research will compare the type of diversity within the TMT (functional vs. demographic) and the related impact on the firm’s financial performance in terms of P/E (Price/Earnings) Ratio, ROA (Return on Assets) and ROE (Return on Equity). This is in the context of a dynamic digital marketplace that we hypothesize now rewards functional diversity in the TMT as this attribute in the team composition is critical to organizing the firm’s competitive repertoires and strategy. The findings from the research suggest that functional diversity (TMT specialties such as marketing, finance, operations, etc.) is more significant than demographic diversity (gender, ethnicity, nationality). This study indicates that functional diversity had a positive correlation with financial performance in terms of the P/E Ratio and ROA, while demographic diversity had a slightly negative correlation, not having a significant impact on the firm’s financial performance.
Keywords: Functional Diversity, Functional Experience Background, Demographic Diversity, Firm Financial Performance, TMT (Top Management Team), TMG (Top Management Group), Cognition, Cognitive Diversity
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