Leadership characteristics of declining firms attempting turnaround

Abstract

PurposeThe purpose of this paper is to empirically examine the relationship between chief executive officer characteristics and corporate turnaround performance of declining firms attempting turnaround.Design/methodology/approachA sample of 60 US manufacturing firms that experience severe performance decline and turnaround from 1985 to 2000 are selected from a population of declining manufacturing firms in the COMPUSTAT database. Data on leadership characteristics are collected and analyzed using ordinary least square regression analysis and ANOVA.FindingsThe general findings of the study provide empirical support for the upper echelons theory that emphasizes leadership characteristics as predictors of organizational outcomes. More specifically, the findings suggest the strong and adverse influence of long executive tenure on corporate turnaround performance. The findings also indicate that executives with output‐related functional background positively influence corporate turnaround performance in declining firms attempting turnaround.Research limitations/implicationsThe findings of this paper have important implications for corporate governance issues in declining firms attempting turnaround. In addition, the findings also lend further empirical support for the role of strategic leadership in shaping organizational outcomes especially under declining environmental conditions.Originality/valueThis paper contributes to the turnaround literature by providing empirical evidence on the role of strategic leadership in formulating and implementing turnaround strategies in declining firms. It also provides further support for the upper echelons perspective and strategic decision making.