Strategic Management Journal

Strat. Mgmt. J., 28: 653–662 (2007)

Published online 16 March 2007 in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/smj.599
Received 14 May 2004; Final revision received 13 August 2006

RESEARCH NOTES AND COMMENTARIES

CEO TENURE AND ORGANIZATIONAL

PERFORMANCE: AN INTERVENING MODEL
ZEKI SIMSEK*
School of Business, University of Connecticut, Storrs, Connecticut, U.S.A.

While CEO job tenure is seen as influencing firm performance, the intervening mechanisms that
govern this influence have remained largely unexplored. Given that individuals in the firm most
closely influenced by the CEO are members of the top management team (TMT), we focus on
the CEO-TMT interface as one important intervening mechanism. Specifically, our tested model
suggests that CEO tenure indirectly influences performance through its direct influences on TMT
risk-taking propensity and the firm’s pursuit of entrepreneurial initiatives. Results from structural
equation modeling are consistent with this model and support its associated hypotheses. In the
discussion, we trace the implications of our study for research and practice. Copyright  2007
John Wiley & Sons, Ltd.

The relationship between CEO job tenure and firm
performance has interested strategic management
researchers for decades. Generally, previous
researchers who studied simple ‘main effects’
of tenure on performance observed that tenure
does indeed make a difference. However, as
is now generally acknowledged, the relationship
between tenure and performance is much more
complex than was originally thought (Hambrick
and Fukutomi, 1991). In particular, researchers are
now analyzing mechanisms that might govern the
tenure–performance relationship by focusing on
Keywords: CEO tenure; TMT risk-taking propensity;
entrepreneurial initiatives; performance
∗
Correspondence to: Zeki Simsek, School of Business, Univer-
sity of Connecticut, 2100 Hillside Road Unit 1041, Storrs, CT
06269-1041, U.S.A.
E-mail: Zeki.Semski@business.uconn.edu
tenure’s more proximal outcomes such as company
invention (Wu, Levitas, and Priem, 2005) and
R&D spending (Barker and Mueller, 2002).
Consistent with these researchers, we propose
and test a model that goes beyond tenure’s main
effects. Specifically, because tenure shapes the
risk-taking behavior that the CEO brings to the task
of evaluating, rewarding, and motivating mem-
bers of the top management team (TMT), we
envision TMT risk-taking propensity as a causal
bridge between tenure and performance. Moreover,
because executives’ risk propensities are consid-
ered important influences on strategic initiatives,
we reason that TMT risk taking will influence per-
formance via the firm’s pursuit of entrepreneurial
initiatives (Zahra, 1996). Our model is thus built
on the premise that the more distal, exogenous
influence of tenure on performance can be better

Copyright  2007 John Wiley & Sons, Ltd.

654 Z. Simsek
explained by the more proximal, endogenous influ-
ence of TMT risk taking within firm-specific con-
texts.
Apart from focusing on more complex inter-
vening effects, our study is the first to exam-
ine the CEO–TMT risk-taking interface as one
important mechanism for understanding the rela-
tionship between tenure and performance. Addi-
tionally, the preponderance of TMT research has
employed various versions of demography the-
ory, which suggests that the composition of TMTs
with regard to various demographic characteris-
tics (e.g., age, tenure, and education) is congruent
with the collective orientation of TMTs. As an
example, Finkelstein and Hambrick (1990: 486)
argued that ‘a top team’s tenure in the organiza-
tion affects (and serves as an approximation for)
. . . its attitudes toward risk.’ To numerous scholars,
however, this congruence assumption creates a the-
oretically impoverished understanding and limits
research’s operational validity—that is, the ability
of the practitioner to implement action implica-
tions of a theory by manipulating its causal vari-
ables—(e.g., Priem, Lyon, and Dess, 1999). Thus,
our focus on the ‘substantive’ dimension of TMT
risk-taking propensity as an intervening mecha-
nism also helps to provide a more thorough and
actionable understanding of tenure’s influences on
the firm.
THEORY AND HYPOTHESES
While research suggests that changes in risk tak-
ing and willingness to embrace strategic risk are
likely to occur over the course of a CEO’s tenure,
extant theories offer conflicting insights about
these changes. Thus, to provide a more rigorous
explanation, and in the spirit of Popper’s charge
to ‘choose the theory which best holds its own
in competition with other theories; the one which,
by natural selection, proves itself the fittest to
survive’ (Popper, 1959: 108), we propose alterna-
tive hypotheses on the relationship between CEO
tenure and TMT risk taking.
CEO tenure and TMT risk-taking propensity
Both the notions of ‘reasoned risk-taking’ (Car-
penter, Pollock, and Leary, 2003) and ‘prob-
lem domain familiarity’ (Sitkin and Pablo, 1992)
Copyright  2007 John Wiley & Sons, Ltd.
suggest that the greater an individual’s past experi-
ence in dealing with strategic risks, the less uncer-
tainty the individual is likely to perceive regarding
the likely outcome of taking these risks, and the
more reasonable the risks will seem. In particu-
lar, experience may reduce the magnitude of actual
(or perceived) potential loss and/or the probabil-
ity of loss associated with strategic risk taking by
(a) improving the selection process whereby the
individual identifies those risky actions within a
set of potential actions that have the greatest prob-
ability of success; (b) allowing individuals to more
comprehensively assess and justify taking actions
they might otherwise deem too risky absent such
experience; and (c) improving the individual’s per-
formance in execution.
It then follows that strategic risk taking, because
of its reliance on idiosyncratic and tacit knowledge
of the TMT, the firm, and the environment, might
necessitate executive experience gained via long
tenure. Short-tenured CEOs may lack sufficient
awareness to effectively notice and assess strate-
gic risks. They are also unknown, untested, and
lacking legitimacy, which might limit their per-
formance in execution. Thus, short-tenured CEOs’
efforts to spur TMT risk taking may be less than
optimal, even if they willingly embrace strategic
risks. Long-tenured CEOs, however, accumulate
a track record, attain a deeper knowledge of the
firm’s environment, and acquire firm- and job-
specific skills. Moreover, a long tenure reflects the
extent to which the CEO has been integrated into
the networks of key stakeholders and establishes
the resources and coalitions that enable the CEO to
orchestrate, nurture, and support risky initiatives.
With longer tenure, CEOs are also likely to have
been involved in more strategic risk situations and
can be expected to better manipulate the TMT in
strategic risk taking. Thus, because long tenures
are conducive to the accumulation of knowledge,
learning, and power, our first hypothesis is as fol-
lows:
Hypothesis 1a: CEO tenure will be related pos-
itively to TMT risk-taking propensity.
An alternative notion, grounded in theories of
upper echelons and prospect, is that the tenure–risk
taking link is more complex and nonlinear. While
these theories too highlight some positive impli-
cations of initial increases in tenure for strate-
gic risk taking, they additionally suggest that
Strat. Mgmt. J., 28: 653–662 (2007)
DOI: 10.1002/smj

long tenures may give rise to risk avoidance and
aversion (Miller and Shamsie, 2001). Hambrick
and Fukutomi’s (1991) integrative model sug-
gests that long-tenured CEOs become committed
to their paradigm, avoid information that discon-
firms this paradigm, lose interest in their jobs,
and ignore calls for strategic change. Thus, long-
tenured CEOs can be expected to commit to the
status quo because of inferior adaptive aspirations
(Cyert and March, 1963). Moreover, throughout
their tenure CEOs build up considerable human
capital. Thus, strategic risk seeking, because of the
strain it places on firm resources and its uncertain
return, can threaten firm performance and, con-
comitantly, a CEO’s hard-earned capital. Under
this condition, the prospect theory, at the heart
of which is the idea that people place a higher
value on avoiding loss than on realizing gain
(Kahneman and Tversky, 1979), would suggest
that long-tenured CEOs are to become risk-averse
for they have a great deal—psychologically and
tangibly—invested in the firm. Put simply, as
long tenures move CEOs farther into the ‘domain
of gains’ and the marginal benefit of additional
gains is outweighed by the risk of losing prior
gains, long-tenured CEOs become risk-averse.
Thus, although CEOs learn over time, thereby
expanding and refining their risk-taking behavior,
too tenured CEOs might become overly committed
to their own paradigm and prior gains. A straight-
forward inference is that TMT risk first rises and
then falls with increasing CEO tenure. Specifi-
cally:
Hypothesis 1b: CEO tenure will be related curvi-
linearly (∩) to TMT risk-taking propensity.
TMT risk-taking propensity and firm
performance
To the upper echelons perspective (Hambrick and
Mason, 1984), strategic outcomes that entail great
complexity, equivocality, and uncertainty are par-
ticularly germane to executive influences. Con-
fronted with such ‘weak situations,’ where the
characteristics of the situation are not clear-cut
enough to dictate a course of action, execu-
tives simply cannot afford—in terms of cogni-
tive wherewithal, time, or other resources—to
be comprehensive in decision making. Rather,
they often economize in their decision making by
relying on their personal knowledge, experiences,
Copyright  2007 John Wiley & Sons, Ltd.
Research Notes and Commentaries 655
and values to search, assess, and select among
options. Thus, to the extent that executives’ own
frame of reference becomes the basis for action in
weak situations, we predict that TMT risk-taking
propensity (Gilley, Walters, and Olson, 2002) will
wield strong influences on the firm’s pursuit of
entrepreneurial initiatives. The innovation, ventur-
ing, and strategic renewal activities embodied in
this pursuit require sustained and patient invest-
ment, as well as involve considerable risk and
uncertainty, because time, effort, and money must
be invested before the distribution of their returns
is known (Zahra, 1996). A risk-averse TMT may
behave cautiously and overanalyze the probabil-
ity of losses from entrepreneurial initiatives. Con-
versely, a risk-taking TMT may perceive less
uncertainty and deviate from the single-minded
focus on loss aversion by committing resources to
such initiatives before the possible outcomes are
fully understood. Thus:
Hypothesis 2: TMT risk-taking propensity is pos-
itively related to the firm’s pursuit of entre-
preneurial initiatives.
As noted, all entrepreneurial initiatives entail some
inherent risk, since their benefits are difficult to
estimate a priori. Decisions are made to either
modify or abandon established products, processes,
and methods in favor of new ones based on a
product or service vision for which markets do
not yet exist and that may take years to gener-
ate a profit. However, a growing research stream
suggests that firms pursuing entrepreneurial initia-
tives generally realize enhanced performance by
creating first-mover advantages, targeting premium
market segments, and skimming the market ahead
of competitors (Zahra, 1996). Moreover, a firm
pursuing an efficiency-focused strategy faces risks
such as rivals duplicating cost-saving activities or
losing sight of changing customer needs. Thus,
while the firm’s pursuit of entrepreneurial initia-
tives is risky, and although important advantages
might also accrue from exploitation of existing
resources and opportunities, we predict that, on
net, this pursuit will act as a potent conduit through
which TMT risk-taking propensity influences per-
formance.
Hypothesis 3: The firm’s pursuit of entre-
preneurial initiatives is positively related to its
performance.
Strat. Mgmt. J., 28: 653–662 (2007)
DOI: 10.1002/smj
656 Z. Simsek
METHODOLOGY
Procedure and sample
We collected data from member firms of the
National Federation of Independent Businesses
(NFIB), the nation’s largest small- to medium-
sized business lobbying group. Along with a cover
letter from the NFIB president, we e-mailed a link
to our Web-based survey to the CEOs of man-
ufacturing and service firms with between 20 and
500 employees (5,957 total). We requested that the
CEO participate in the survey and then pass the
survey link to one other senior executive. After
three follow-ups, we received responses from 632
CEOs (a response rate of 11%), ‘consistent with
the 10–12 percent rate typical for mailed surveys
to top executives’ (Hambrick, Geletkanycz, and
Fredrickson, 1993: 407). After excluding six firms
with incomplete data and 84 firms with current
employees of fewer than 20 or more than 500,
our final sample was 495 firms (47.5% in the ser-
vice industry and the rest in manufacturing). We
found no significant differences between early and
late respondents using the Kolmogorov–Smirnov
two-sample test. Analysis of NFIB’s archival data
yielded a significant difference only for size;
responding firms (73 employees) were larger than
the average NFIB member firm because our sample
was limited to firms with more than 20 employ-
ees.
The CEOs in our sample averaged 52 years
of age (S.D. 9.7), had been CEO for 14 years
(S.D. 8.52), had been employed by the firm for
20 years (S.D. 9.95), and had 25 years (S.D. 10.7)
of experience in their firm’s industry. Thus, as
key informants these CEOs should be reasonably
well informed about our focal constructs. Because
relying on single respondents may introduce a
common method bias, however, we performed the
confirmatory factor analysis (CFA) and found no
traces of such bias as the goodness-of-fit indices
indicated a poor fit for the single-factor model.
We also assessed responses using multirespondent
data drawn from a subsample of 47 firms (9%)
that were comparable in average age, size, and
industry membership to the full sample. The cor-
relations were consistently significant (p < 0.001):
TMT risk-taking propensity (0.61), entrepreneurial
initiatives (0.80), performance (0.63), past per-
formance (0.61), munificence (0.60), complex-
ity (0.65), and dynamism (0.64). We also tested
Copyright  2007 John Wiley & Sons, Ltd.
multi-source data by varying the source of subjec-
tively assessed constructs (e.g., the CEO’s assess-
ment of TMT risk taking vs. the second executive’s
assessment of the firm’s pursuit of entrepreneurial
initiatives, and vice versa) and found a similar pat-
tern of significant results as for the full sample,
which we report below.
Variables and measurement
Hypothesized variables
CEO positional tenure was the CEO’s number of
years in office. TMT risk taking (i.e., proclivity to
engage in risky projects and preference for bold vs.
cautious acts to achieve firm objectives) was mea-
sured using Miller and Friesen’s (1983) 3-item, 7-
point scale. Following Zahra (1996), we measured
entrepreneurial initiatives as a three-dimensional
metaconstruct (innovation, venturing, and renewal
activities) represented by 16 items on a 5-point
scale, ranging from 1 (‘strongly disagree’) to
5 (‘strongly agree’). To appropriately account
for lagged effects between entrepreneurial initia-
tives and performance, respondents were asked
to consider their responses over the last three
years. Using items in Gupta and Govindarajan
(1986), we asked CEOs to assess their firms’
performance relative to that of their competi-
tors’ on eight different dimensions (growth in
sales, growth in market share, etc.) for the past
year.
Covariates
We controlled for CEO, firm, and environmental
variables to minimize spurious interpretation of
our findings. Sturman (2003: 627) has suggested
that ‘it would be valuable for future research to
investigate the effects of all three temporal vari-
ables simultaneously’ to partial out each one’s
unique influence. Thus, we controlled for both
the linear and curvilinear effects of the CEO’s
firm tenure (number of years with the firm) and
age. CEO industrial experience was the num-
ber of years CEOs have spent in their firms’
industry. Ownership type was 1 (family-owned)
or 0 (nonfamily-owned). Firm size was full-time
employees log-transformed for normality. Firm
type was 1 (service) or 2 (manufacturing). Past
performance (firm performance 4 years ago) was
measured using the same items as for current per-
formance. Finally, the environmental dimensions
Strat. Mgmt. J., 28: 653–662 (2007)
DOI: 10.1002/smj

of complexity, dynamism, and munificence (Miller
and Friesen, 1983) were measured by 14 items on
a scale of 1 (‘strongly disagree’) to 5 (‘strongly
agree’).
ANALYSES AND RESULTS
Two-step structural equation modeling (SEM) was
particularly appropriate for our study because it
allows estimation of multiple associations, simul-
taneously incorporates observed and latent con-
structs in these associations, and accounts for
the biasing effects of random measurement error.
First, a CFA model assessed the fit indices of the
overall measurement model, which were substan-
tially greater than the acceptability threshold of
0.90 (CFI = 0.97, IFI = 0.97, TLI = 0.95, NFI =
0.94). Moreover, Cronbach’s alphas exceeded the
recommended level of 0.70: TMT risk-taking
propensity (0.77), entrepreneurial initiatives (0.75),
performance (0.92), past performance (0.94),
munificence (0.72), complexity (0.75), and
dynamism (0.74). In Table 1, which contains cor-
relations among all variables, the magnitude of
correlations between some variables (e.g., envi-
ronmental) raised concerns about multicollinearity;
thus, we centered and created composite scales
of each. We also examined discriminant validity
by performing a series of CFAs and found that
the measurement model had the lowest chi-square.
Collectively, these results suggested that the model
fitted the data well, and we proceeded to the second
SEM phase.
Phase two of SEM involved a sequence of
nested structural models to test our hypothe-
ses. The initial comparison between the mea-
surement (χ 2 [715, N = 495] = 382, p < 0.001
[CFI = 0.97, IFI = 0.97, TLI = 0.95, NFI =
0.94]) and the null latent models (χ 2 [528, N =
495] = 3190, p < 0.001 [CFI = 0.75, IFI = 0.75,
TLI = 0.71, NFI = 0.71]) showed a significant
(p < 0.001) χ 2 difference (187) of 2,808, which
provided the basis for assessing the relative
fit of the hypothesized model against other
nested models. Following Medsker, Williams, and
Holahan (1994), we tested four nested models:
(a) the covariates, which specified the effects
of covariates, including squared terms of the
CEO’s temporal variables; (b) the hypothesized ;
(c) the full mediation, which included all links in
the hypothesized model plus the direct link of
Copyright  2007 John Wiley & Sons, Ltd.
Research Notes and Commentaries 657
positional tenure (and squared) to initiatives; and
(d) the partial mediation, which included all links
in the full mediation plus the link of positional
tenure (and squared) to performance.
The results shown in Table 2 indicate that the
hypothesized model provides the best fit (χ 2 [387,
N = 495] = 750, p < 0.001 [CFI = 0.97, IFI =
0.97, TLI = 0.95, NFI = 0.93]). Structural param-
eters for all covariates (also Table 2) indicate that
the proportion of explained variance (R 2 ) due to
the covariates is 0.19 for TMT risk taking, 0.41 for
the firm’s entrepreneurial initiatives, and 0.14 for
performance. The proportion of explained variance
(R 2 ) in the hypothesized model is 0.20 for TMT
risk taking, 0.62 for the firm’s entrepreneurial ini-
tiatives, and 0.26 for performance. The positive
coefficient between CEO positional tenure and
TMT risk taking (p < 0.01) supports Hypothesis
1a and is opposite to Hypothesis 1b. The struc-
tural parameters also indicate that TMT risk taking,
consistent with Hypothesis 2, is significantly asso-
ciated with entrepreneurial initiatives (p < 0.001),
which, in turn, is significantly associated with per-
formance (p < 0.001), as Hypothesis 3 predicted.
IMPLICATIONS AND DISCUSSION
Our model sequentially linked the shaping influ-
ence of CEO tenure on TMT risk-taking propen-
sity and, in turn, on performance via the firm’s
pursuit of entrepreneurial initiatives. By examin-
ing a sequence of nested models, we found that
CEO tenure influenced performance through its
influences on TMT risk taking and the firm’s pur-
suit of entrepreneurial initiatives. These findings
are fully consistent with both upper echelons the-
ory’s core premise that the top team, rather than
the top person, has the greatest influence on the
firm and entrepreneurship researchers, who have
suggested that entrepreneurial initiatives provide a
unique venue where the influence of strategic risk
taking on performance is likely to be pronounced.
We enrich research by demonstrating the
CEO–TMT interface as one important interven-
ing mechanism for understanding the relationship
between CEO tenure and performance. Indeed,
while researchers have long acknowledged the
need to better understand the uniquely important
role of the CEO within TMTs, the CEO–TMT
interface has generally been unexplored. Addi-
tionally, specifying opposing theoretical views on
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DOI: 10.1002/smj
 658
Z. Simsek

Table 1. Means, standard deviations, and correlationsa

Variable Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13

Copyright  2007 John Wiley & Sons, Ltd.

1. CEO 13.8 (years) 8.52
positional
tenure
2. CEO firm 19.9 (years) 9.95 0.61∗∗∗
tenure
3. TMT risk 4.09 1.13 0.09† −0.02
taking
4. Entrepreneurial 2.51 0.77 0.02 −0.08 0.59∗∗∗
initiatives
5. Performance 3.34 0.77 −0.03 −0.06 0.43∗∗∗ 0.31∗∗∗
6. CEO age 52.1 (years) 9.67 0.50∗∗∗ 0.47∗∗∗ 0.11∗ −0.04 −0.02
7. CEO industry 24.6 (years) 10.77 0.53∗∗∗ 0.71∗∗∗ 0.09† 0.00 −0.07 0.59∗∗∗
experience
8. Size (log) 1.71 0.32 −0.01 0.06 0.16∗∗∗ 0.33∗∗∗ 0.22∗∗∗ 0.04 0.04
9. Ownership 0.69 0.46 0.17∗∗∗ 0.15∗∗∗ 0.01 −0.06 −0.07 0.03 0.04 0.06
10. Type 1.53 0.50 0.01 0.06 −0.11∗ −0.07 −0.15∗∗ −0.06 0.00 −0.04 −0.17∗∗∗
11. Past 3.38 0.76 0.06 0.06 −0.02 0.12∗ 0.18∗∗∗ 0.05 0.13 0.08† 0.00 0.00
performance
12. Munificence 2.88 0.72 0.00 −0.03 0.36∗∗∗ 0.53∗∗∗ 0.11∗ 0.01 0.12∗ 0.09∗ −0.06 −0.06 0.09∗
∗∗∗
13. Complexity 2.99 0.76 −0.02 −0.02 0.21∗∗∗ 0.44 −0.02 −0.05 0.08† 0.02 −0.05 −0.00 0.08† 0.55∗∗∗
14. Dynamism 3.17 0.69 −0.02 −0.02 0.11∗ 0.25∗∗∗ −0.13∗∗ −0.06 0.06 −0.05 −0.04 −0.02 0.08† 0.48∗∗∗ 0.62∗∗∗

a
N = 495. Correlations are from structural equation modeling estimations.
∗∗∗
p < 0.001; ∗∗ p < 0.01; ∗ p < 0.05; † p < 0.10

DOI: 10.1002/smj
Strat. Mgmt. J., 28: 653–662 (2007)
 Table 2. Resultsa

Criterion Predictors Covariates R2 Hypothesized R2 Full mediation R2 Partial R2

model model model mediation model
Structural Structural Structural Structural
parameters parameters parameters parameters

TMT risk taking CEO positional tenure 0.19 0.20∗∗ 0.20 0.20∗∗ 0.20 0.20∗∗ 0.20
(Positional tenure)2 −0.09 −0.09 −0.09
CEO firm tenure −0.14∗ −0.21∗∗ −0.21∗∗ −0.21∗∗

Copyright  2007 John Wiley & Sons, Ltd.

(Firm tenure)2 0.06 0.12∗ 0.12∗ 0.12∗
CEO age 0.10† 0.06 0.06 0.06
(CEO age)2 0.02 0.03 0.03 0.03
CEO industry experience 0.08 0.05 0.05 0.05
Size 0.14∗∗ 0.15∗∗ 0.15∗∗ 0.15∗∗
Ownership −0.07 −0.05 −0.05 −0.05
Type −0.10∗ −0.10∗ −0.10∗ −0.10∗
Past performance −0.08∗ −0.08∗ −0.08∗ −0.08∗
Munificence 0.33∗∗∗ 0.32∗∗∗ 0.32∗∗∗ 0.32∗∗∗
Complexity 0.09 0.09 0.09 0.09
Dynamism −0.08 −0.07 −0.07 −0.07
Entrepreneurial TMT risk taking 0.41 0.49∗∗∗ 0.62 0.48∗∗∗ 0.62 0.48∗∗∗ 0.62
initiatives
CEO positional tenure 0.09 0.09
(Positional tenure)2 −0.06 −0.06
CEO firm tenure −0.07 0.00 −0.03 −0.03
(Firm tenure)2 −0.01 −0.04 −0.00 −0.00
CEO age −0.01 −0.05 −0.07 −0.07
(CEO age)2 0.03 0.02 0.03 0.03
CEO industry experience −0.02 −0.07 −0.08 −0.08
Size 0.29∗∗∗ 0.23∗∗∗ 0.23∗∗∗ 0.23∗∗∗
Ownership −0.03 0.01 0.02 0.02
Type −0.08 −0.00 −0.00 −0.00
Past performance 0.05 0.09∗ 0.09∗ 0.09∗
Munificence 0.38∗∗∗ 0.24∗∗∗ 0.24∗∗∗ 0.24∗∗∗
Complexity 0.28∗∗∗ 0.24∗∗∗ 0.24∗∗∗ 0.24∗∗∗
Dynamism −0.10† −0.07 −0.07 −0.07
Research Notes and Commentaries

Strat. Mgmt. J., 28: 653–662 (2007)

659

DOI: 10.1002/smj
 660

Table 2. (Continued )

Criterion Predictors Covariates R2 Hypothesized R2 Full mediation R2 Partial R2

model model model mediation model
Z. Simsek

Structural Structural Structural Structural

parameters parameters parameters parameters

Performance Entrepreneurial initiatives 0.14 0.44∗∗∗ 0.26 0.44∗∗∗ 0.26 0.44∗∗∗ 0.26
CEO positional tenure −0.02

Copyright  2007 John Wiley & Sons, Ltd.

(Positional tenure)2 −0.05
CEO firm tenure −0.04 −0.01 −0.01 0.00
(Firm tenure)2 −0.03 −0.03 −0.03 −0.02
CEO age 0.02 0.02 0.02 0.03
(CEO age)2 0.05 0.04 0.04 0.05
CEO industry experience −0.06 −0.05 −0.05 −0.04
Size 0.25∗∗∗ 0.12∗ 0.12∗∗∗ 0.12∗∗∗
Ownership 0.02 0.03 0.03 0.03
Type −0.12∗∗ −0.09∗ −0.09∗ −0.09∗
Past performance 0.12∗∗ 0.09∗ 0.09∗∗ 0.09∗∗
Munificence 0.13∗∗ −0.05 −0.05 −0.05
Complexity 0.04 −0.09 −0.09 −0.09
Dynamism −0.22∗∗∗ −0.18∗∗ −0.18∗∗ −0.18∗∗
Comparisons χ2 d.f. (χ 2 [391, N = (χ 2 [387, N = (χ 2 [385, N = (χ 2 [383, N =
difference 495] = 865, 495] = 750, 495] = 747, 495] = 746,
p < 0.001 p < 0.001 p < 0.001 p < 0.001
[CFI = 0.96, [CFI = 0.97, [CFI = 0.97, [CFI = 0.97,
IFI = 0.96, IFI = 0.97, IFI = 0.97, IFI = 0.97,
TLI = 0.93, TLI = 0.95, TLI = 0.95, TLI = 0.95,
NFI = 0.92]) NFI = 0.93]) NFI = 0.93]) NFI = 0.93])
Model II vs. I 115∗∗∗∗ 4
Model II vs. III 3 n.s. 2
Model II vs. IV 4 n.s. 4

a
Standardized values.
N = 495.
∗∗∗
p < 0.001; ∗∗ p < 0.01; ∗ p < 0.05; † p < 0.10

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Strat. Mgmt. J., 28: 653–662 (2007)

CEO tenure yielded a more rigorous explanation.
We found that CEO tenure had a positive net effect
on TMT risk taking, rather than the inertial and
complacent effects suggested by upper echelons
and prospect theorists. As an aside, given the rela-
tively high mean positional tenure of the CEOs in
our sample (nearly 14 years), it is less likely that
the positive relationship we found between CEO
tenure and TMT risk taking represents just the
lower half of an inverted-U relationship truncated
at the high end.
Also, the CEO’s firm tenure not only contributed
to the overall explanatory power of our model, but
also exhibited a negative association with TMT
risk taking. There was also a positive associa-
tion between (firm tenure)2 and TMT risk-taking
propensity, suggesting an upward bend to firm
tenure’s negative influence at late tenures. By plot-
ting this association (not shown here), we discov-
ered three distinct spheres of influence of firm
tenure on TMT risk taking: for years 1 through 12,
influence decreased (average tenure = 7.5, S.D. =
3.4 and average TMT risk taking = 4.2, S.D. =
1.1); between years 13 and 31, influence was at
a minimum (average tenure = 21, S.D. = 5.5 and
average TMT risk taking = 3.9, S.D. = 1.2); for
years greater than 31, influence increased (aver-
age tenure = 39, S.D. = 6.0 and average TMT risk
taking = 4.2, S.D. = 1.1).
Thus, the image of a risk-taking CEO that
emerges from our study is not that of young and
energetic, as is commonly presented in the liter-
ature, but rather, a well-seasoned individual with
idiosyncratic and tacit knowledge of the firm and
its environment. It appears that as our CEOs accu-
mulated a track record and acquired firm- and
job-specific skills and knowledge, they became
more competent and confident in strategic risk
taking via their TMTs. This finding may appear
counterintuitive, as risk-taking propensity requires
a willingness to embrace strategic change and
uncertainty that would seem to favor short tenure.
The liabilities of short tenure, however, appear to
exceed the advantages, while the advantages of
long tenure—firm-specific human and social capi-
tal, knowledge, and power—seem to outweigh the
disadvantages of rigidity and maintaining the sta-
tus quo.
However, because our research design was
cross-sectional, our conclusions must be inferred
with caution. Also, while we tried to address a
causal gap, we built our theory on the fundamental
Copyright  2007 John Wiley & Sons, Ltd.
Research Notes and Commentaries 661
assumption that CEO tenure adequately captures
aspects of executive attention and behavior
identified previously. Unfortunately, collecting
data on such constructs, not to mention measuring
them, might prove difficult at best. Moreover, as
Barker and Mueller suggest, while fine-grained
psychological constructs may better capture
underlying beliefs and preferences, observable
CEO characteristics such as tenure might have
superior competitive value because ‘strategic
decision makers must make judgments about
competitors based on what can be observed
about their competitive history and visible
characteristics’ (Barker and Mueller, 2002: 799).
While it remains to be seen whether or not
our findings can be generalized to larger, pub-
licly owned firms, they suggest that strategic lead-
ers should discourage frequent job changes among
their senior executives because the resulting short-
term focus, inadequate socialization, and lack of
firm-specific knowledge could foster risk avoid-
ance. The positive contribution of CEO tenure to
performance via TMT risk taking suggests that
strategic leaders may need to be vigilant about
the CEO–TMT interface, particularly when boards
assess CEO performance. Our findings also sug-
gest that boards should attempt to foster a spirit
of loyalty and risk seeking among their execu-
tives because whether or not the firm pursues
performance-enhancing entrepreneurial initiatives
appears to be critically shaped by executive risk-
taking propensity. While personal character traits
are difficult to change, promoting a risk-seeking
mind-set is feasible and could be made a compo-
nent of executive training programs and incentive
systems.
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