Top management team (TMT) antecedents and financial performance outcomes of firm internationalisation: The mediating effect of the competence of the TMT

Identifying the antecedents of firm internationalisation is a central topic of interest within the international business (IB) field. One set of potential antecedents is the characteristics of the top management teams (TMTs) that drive their firms’ international outcomes. Interestingly, research into the role of TMTs in this context remains relatively rare. Drawing predominantly on upper echelons theory, the primary aim of this study was to examine the relationships between TMT characteristics and firm internationalisation and the mediating role of the competence of the TMT on these relationships. Then, because financial performance is typically assumed to be the ultimate objective for international businesses, the secondary aim of this study was to examine whether the competence of the TMT or firm internationalisation are associated with firm financial performance. Data were collected from a survey of 152 top executives from Australian firms who undertake international operations. Results of structural equation modelling show that TMT nationality diversity, the proportion of TMT members with a tertiary education, and TMT behavioural integration were positively related to firm internationalisation, with these relationships fully mediated by competence of the TMT. In comparison, the proportion of TMT members with international experience had a direct (unmediated) positive relationship with firm internationalisation. The geographic scope of TMT international experience and TMT relationships (intra-firm, intra-industry, and extra-industry) were not found to have direct, or indirect, effects on firm internationalisation. Lastly, the competence of the TMT was positively related to firm financial performance, while firm internationalisation was not linearly related to firm financial performance. Ad hoc analysis, however, detected a negative quadratic (inverted U-shaped) relationship between firm internationalisation and financial performance, whereby firm internationalisation is beneficial to firm financial performance up to a certain point, after which additional internationalisation becomes detrimental to financial performance. This study makes the following theoretical contributions to current understanding of the role of TMTs in driving firm internationalisation and firm financial performance. First, the competence of the TMT is shown to be a central construct underpinning the mechanism by which TMT characteristics impact firm internationalisation. This sheds some light on the black box problem that has plagued upper echelons literature. Second, the competence of the TMT is revealed to be a valuable resource which allows firms to maximise their financial performance and calibrate the pressures of under- and over-internationalising, so as to ensure that an optimal degree of internationalisation is maintained.