The impact of top management team tenure heterogeneity on declining firm's innovation efficiency

A firm maybe experiences a flourishing or declining period, and it also probably survives or even dies in future. Most firms have experienced decline in their development process. The impact of demand contraction and COVID-19 has caused more firms to face decline. Under the dilemma of resources reduction and recovery, the declining firm pays more and more attention to the efficient utilization of limited resources. It attempts to achieve turnaround through CEO substitution, adjustment of ownership concentration, innovation-oriented and other strategies. Based on Upper echelons theory and resource-based view, using the data of A-share listed manufacturing firms in Shanghai and Shenzhen from 2015 to 2019, the impacts of TMT tenure heterogeneity and ownership concentration on the innovation efficiency were investigated. The results show that the TMT tenure heterogeneity promotes the innovation efficiency of declining firms, while the relatively centralized ownership structure negatively moderates this effect. The robustness analysis of variable replacement and the solving of endogenous problem also further support this conclusion. This study not only enriches the application areas of Upper echelons theory, but also provides practical guideline for declining firms to replace top management members and to dilute equity in order to achieve recovery.

Methods
The data mainly comes from the annual data of Shanghai and Shenzhen A-share listed manufacturing firms from 2015 to 2019. Referring to Teixeira et al. (2019), firms that meet the following criteria are defined as declining firms: (1) ROA decreases for at least two consecutive years; (2) ROA is negative for at least three consecutive years. Firms with missing key indicators such as R&D expenditures and number of patents granted are excluded. The patent data are obtained from the CNRDS database, and the financial data are obtained from the CSMAR and WIND databases. Meanwhile, to ensure the comparability of samples, 534 firm observations are finally selected after PSM nearest-neighbour matching on a 1:1 no-put-back basis, of which 267 are declining firms and 267 are normal firms. The DEA-Malmquist index is calculated using Deap2.1. Finally, 2136 sample observations are obtained from 2016 to 2019.