Relationship Between Firm Leaders And Firm Performance

1632 Words May 17th, 2015 7 Pages
Introduction

The relationship between firm leaders’ features and firms’ performance has drawn increasing attention in recent years. The intuition behind can mostly be explained by upper echelons theory (Hambrick and Mason 1984). The main idea of upper echelons theory is that a firm can be seen as the reflection of its upper echelon (defined as key decision-making groups).

This paper aims to investigate the relationships between the educational backgrounds of board of directors (BOD) and firm performance in China. More specifically, the paper is expected to have two significant contributions to understanding firm performance and behaviour on which many studies have not focused. It will examine the relationship between BOD’s background of law and firm’s tax avoidance. It will also emphasise on the relationship between BOD’s experience studying abroad and firm’s foreign investment expenses. All sample firms in this paper are publicly listed in Shanghai Stock Exchange (SSE) in China.

Literature Review

Upper echelons theory was firstly proposed by Hambrick and Mason in 1984. As suggested by its name, it argues that executives make strategic decisions based on their personalised construal of the situations faced by the firms and their personalised interpretations are greatly affected by their experiences, values and personalities (Hambrick 2007). Many studies have focused on firm leaders’ features which can be roughly categorised into two perspectives: observable and…
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