The Role of External Environment in Upper Echelons Theory

Upper echelons research has largely focused on the antecedents and consequences of top management teams (TMTs) from the team and firm levels of analysis. This paper reviews empirical research on TMTs with a specific emphasis on the role of the external environment. Applying institutional and industrial organization theories, a cross-level conceptual model outlining the direct, mediating, and moderating effects of the external environment on upper echelons is developed. This review distinguishes between industry and institutional levels of analysis and three types of environmental characteristics: stable, dynamic, and transformational. The paper further explains the relationships between each category of characteristics and firm upper echelons, and outlines possible avenues for future research.