Managerial Style and Attention
67 Pages Posted: 24 Aug 2017 Last revised: 3 Feb 2019
Date Written: September 1, 2016
Is firm behavior mainly driven by its environment or rather by the characteristics of its managers? We develop a cognitive theory of manager fixed effects, where the allocation of managerial attention determines firm behavior. We show that in complex environments, the endogenous allocation of attention exacerbates manager fixed effects. Small differences in managerial expertise then may result in dramatically different firm behavior, as managers devote scarce attention in a way which amplifies initial differences. In contrast, in less complex environments, the endogenous allocation of attention mitigates manager fixed effects. Firm owners prefer managers with task-specific expertise only in complex environments.
Keywords: Managerial Style, Attention, Managerial Fixed Effects, Firm Behavior
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