Renewal through Rookies: The Growth Effect of Industry and Firm Experience among Top Management Recruits

Charles Williams, Bocconi University
Rajshree Agarwal, University of Maryland
Pao-Lien Chen, National Tsinghua University

Abstract

This study examines the impact of new top management talent on the growth of the recipient firm. Specifically, we maintain that the growth a firm can achieve through sourcing new executives is subject to the availability and the relevance of managerial capabilities to the recipient firm, which vary with the origins of new executives (i.e. hierarchical, organizational, and industrial origins), and the knowledge gaps the recipient firm faces, caused by the evolving industrial and organizational environments. An empirical test on U.S. cellular phone service providers from 1983 to 1998 shows that (1) rookie executive recruits are more valuable to firm growth than seasoned executive recruits, (2) rookie executives from competitors and other industries are more valuable to firm growth than internally promoted rookie executives, (3) the impact of new executives from other industries on firm growth reduces as the industry ages, and (4) seasoned executives from competitors are more valuable to the recipient firm’s growth when the existing TMT members are less experienced in the team and the industry; in contrast, seasoned executives from other industries are more valuable to the recipient firm’s when existing TMT members are more experienced in the team and the industry.