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Top management team functional diversity and firm performance: the mediating role of managerial ability

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  • Ho, L.C. Jennifer
  • Yang, T.H. Joey

Abstract

This study investigates the relationship between top management team (TMT) functional diversity and firm performance, focusing on two forms of diversity: between-member (dominant functional diversity, DFD) and within-member (intrapersonal functional diversity, IFD). Using a sample of 15,521 firm-year observations from 1,770 U.S. firms between 2009 and 2020, we find that IFD is positively and significantly associated with firm performance, measured by industry-adjusted Tobin’s Q, while the relationship between DFD and firm performance is positive but not statistically significant. Using the bootstrapping methodology, a mediation analysis reveals that managerial ability serves as a key mechanism through which TMT IFD enhances firm performance. Contextual analyses show that organizational innovativeness and CEO power moderate the relationship between IFD and firm performance, with innovative firms and powerful CEOs better leveraging TMT functional diversity to enhance strategic decision-making and operational efficiency. Robustness tests, including propensity score matching and instrumental variable approaches, address potential endogeneity concerns and confirm the validity of our findings. This study contributes to the literature on TMT diversity by providing new insights into the role of functional diversity in driving firm performance and highlighting the importance of managerial ability as a mediating factor.

Suggested Citation

  • Ho, L.C. Jennifer & Yang, T.H. Joey, 2026. "Top management team functional diversity and firm performance: the mediating role of managerial ability," Journal of Contemporary Accounting and Economics, Elsevier, vol. 22(2).
    • Handle: RePEc:eee:jocaae:v:22:y:2026:i:2:s1815566926000238
    DOI: 10.1016/j.jcae.2026.100560
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