The impact of top management team power centralization on firm performance under varying industry conditions: evidence from Chinese listed firms

Purpose Understanding how top management team (TMT) characteristics affect firm performance under varying conditions is a critical area of research. This study examines the effect of TMT’s power centralization on firms’ performance, specially focusing on Chinese context. Design/methodology/approach Based on data from Chinese listed companies between 2017 and 2021, we conducted experimental studies on how the TMT power centralization affects firms’ operating cost ratio (OCR) and how this relationship is moderated by industry conditions. Findings Our findings reveal that TMT with high power centralization is more effective in reducing OCR, especially in industries characterized by low complexity, low munificence and high dynamism – conditions we term as precarious situations. We introduce the concept of high-power distance in China to explain this phenomenon. Our findings suggest that empowering TMT leaders is crucial for firms operating in such precarious industry conditions. Originality/value Our study makes several significant contributions to the ongoing discourse of TMT studies. First, we expanded existing literature on CEO power dynamics and identified industry boundary conditions that explain when and why TMT power centralization enhances or undermines performance—reconciling contradictory findings. Second, we bridged macro (power-distance culture), meso (industry contingencies) and micro (TMT structure) levels to show that power distance enables centralized TMT structures in China. Third, by quantifying power disparity via continuous indices, we reveal nuanced structural adaptations that binary classifications cannot capture, thereby refining understanding of power configurations within the structural adaptation framework.