Article2022

A blessing and a curse: How chief executive officer cognitive complexity influences firm performance under varying industry conditions

63 citations0/0 files storedStrategic Management Journal

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Organizational Management and Leadership Corporate Finance and Governance Leadership, Behavior, and Decision-Making Studies

Abstract

Abstract Research Summary How CEO cognitive complexity influences firm outcomes raises an intriguing theoretical tension. While more cognitively complex CEOs can potentially bolster firm performance through their more elaborate and multifaceted information processing, those tendencies can also hurt performance because they require more time and energy, delaying decision making. We posit and show a nuanced effect of CEO cognitive complexity on firm performance, contingent on industry conditions. CEO cognitive complexity benefits performance under more complex, stable, and munificent industry conditions, but hurts performance under simpler, more dynamic, and more constrained conditions. Post‐hoc analyses further show that these effects are similar when considering firm‐level factors reflecting munificent and dynamic internal conditions. Our study highlights the boundary conditions under which CEO cognitive complexity may be beneficial or detrimental for firms. Managerial Summary CEOs have different cognitive styles that can impact how they approach decision making. Whereas some exhibit greater cognitive complexity, that is, by engaging in broader and deeper information search and considering more differentiated and nuanced perspectives and alternatives, others engage in simpler and less comprehensive information processing when making decisions. While it seems intuitive to assume that CEOs' cognitive complexity should be beneficial for firms, collecting and processing a large amount of complex information can also complicate and delay decision‐making. Our results show that S&P 1500 CEOs who are more cognitively complex improve firm performance when their firms operate in more complex, stable, and resource‐rich environments but hurt firm performance when their firms operate in simpler, more dynamic, and resource‐constrained environments.

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References

2010Heuristic Decision Making 1984Dimensions of Organizational Task Environments 2007A leader's framework for decision making 1988Strategic Decision Processes in High Velocity Environments: Four Cases in the Microcomputer Industry 1995CEO duality and firm performance: A contingency model 2000Curvilinearity in the diversification-performance linkage: an examination of over three decades of research 1964A Behavioral Theory of the Firm.1996DOES DECISION PROCESS MATTER? A STUDY OF STRATEGIC DECISION-MAKING EFFECTIVENESS.

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