DP13527 Managerial Style and Attention

Author(s): Wouter Dessein, Tano Santos
Publication Date: February 2019
Keyword(s): attention, Firm behavior, Firm Strategy, Managerial Style
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13527

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.