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Top Team Deterioration as Part of the Downward Spiral of Large Corporate Bankruptcies

Author

Listed:
  • Donald C. Hambrick

    (Graduate School of Business, 711 Uris Hall, Columbia University, New York, New York 10027)

  • Richard A. D'Aveni

    (Amos Tuck School of Business Administration, Dartmouth College, Hanover, New Hampshire 03755)

Abstract

This exploratory study of 57 large bankruptcies and 57 matched survivors examined the top management team (TMT) characteristics associated with major corporate failure. Prior research was used to guide selection of specific team characteristics for study. Not only did the failing firms show significant annual, or cross-sectional, divergence from survivors on several indicators of TMT composition, but also those divergences became more pronounced, even accelerating, over the last five years of the bankrupts' lives. The results thus suggest that deterioration of the top management team is a central element of the downward spiral of large corporate failures. Based upon a limited test of causality, the authors propose that a two-way process is at work: (1) team deficiencies bring about or aggravate corporate deterioration, either through strategic errors or stakeholder uneasiness with the flawed team; and (2) corporate deterioration brings about team deterioration, through a combination of voluntary departures, scapegoating, and limited resources for attracting new executive talent.

Suggested Citation

  • Donald C. Hambrick & Richard A. D'Aveni, 1992. "Top Team Deterioration as Part of the Downward Spiral of Large Corporate Bankruptcies," Management Science, INFORMS, vol. 38(10), pages 1445-1466, October.
  • Handle: RePEc:inm:ormnsc:v:38:y:1992:i:10:p:1445-1466
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    File URL: http://dx.doi.org/10.1287/mnsc.38.10.1445
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    References listed on IDEAS

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    4. Robert Carbone & JS Armstrong, 2004. "Evaluation of Extrapolative Forecasting Methods: Results of a Survey of Academicians and Practitioners," General Economics and Teaching 0412008, EconWPA.
    5. Robert Carbone & Spyros Makridakis, 1986. "Forecasting When Pattern Changes Occur Beyond the Historical Data," Management Science, INFORMS, vol. 32(3), pages 257-271, March.
    6. Armstrong, J. Scott & Collopy, Fred, 1992. "Error measures for generalizing about forecasting methods: Empirical comparisons," International Journal of Forecasting, Elsevier, vol. 8(1), pages 69-80, June.
    7. Sanders, NR & Ritzman, LP, 1990. "Improving short-term forecasts," Omega, Elsevier, vol. 18(4), pages 365-373.
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