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

• Published in: Strategic management journal Vol. 43; no. 13; pp. 2809 - 2828
• Main Authors: Malhotra, Shavin, Harrison, Joseph S.
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01.12.2022; Wiley Periodicals Inc
• Subjects: CEO cognition; Chief executive officers; Chief executives; Cognitive complexity; Cognitive style; Companies; Decision making; firm performance; industry conditions; Information processing; Organizational performance; upper echelons
• ISSN: 0143-2095; 1097-0266
• DOI: 10.1002/smj.3415

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.