Working Paper: CEPR ID: DP13527
Authors: Wouter Dessein; Tano Santos
Abstract: 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 style' only in complex environments.
Keywords: managerial style; attention; firm strategy; firm behavior
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| managerial attention allocation (M54) | firm behavior (D21) |
| managerial expertise (M54) | managerial attention allocation (M54) |
| complex environment (Q57) | managerial attention allocation (M54) |
| complex environment (Q57) | firm behavior (D21) |
| managerial attention allocation (M54) | firm outcomes (G32) |
| managerial expertise (M54) | firm behavior (D21) |
| less complex environment (Q57) | generalized managerial approaches (M54) |