External Environment and Upper Echelons Theory: The Missing Link

This work reviews empirical research on TMTs with a specific emphasis on the role of the external environment. We extend the existing research on upper echelons theory, which has largely focused on the team and firm level of analyses of top management teams (TMT). Considering institutional and industrial organization theories, we elaborate a cross-level conceptual model outlining the direct, mediating and moderating effects of the external environment on TMTs and their impact. Our review distinguishes between industry and institutional level of analyses and three types of environmental characteristics: stable, dynamic and transformational. We explain the relationships between each type of characteristics and firm upper echelons and outline possible avenues for future research.