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 that 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.
Dessein, Wouter, and Tano Santos.
"Managerial Style and Attention."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Organizational Behavior; Transaction Costs; Property Rights
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Business Administration: General
Personnel Economics: Labor Management