Does Managerial Macro-cognition Have “Imprinting”？ Evidence from the Effect of Management Style
LUO Yonggen, RAO Pingui, CHEN Can
Institute of Capital Market and Audit Governance Studies for the Greater Bay Area (Guangdong, Hong Kong, Macau)/School of Accounting, Guangdong University of Finance & Economics; Management School, Jinan University; Faculty of Business Administration, University of Macau
Summary:
Due to the complexity of the business and economic environment, managers are faced with a large amount of complex and vague information, leading to a serious problem of information overload. However, managers have bounded rationality, which makes them unable to fully process and interpret environmental information. Managerial Macro-Cognition (MMC) refers to the managerial macro cognitive structure and cognitive process used by managers to process, interpret and apply macro environmental information in decision-making processes. Although they face the same changes in the macro environment, different managers make highly personalized interpretations and judgments, affecting their corporate policy choices and decisions. As a result, managers' perception of macro environmental information is affected by their personal experience, personality, thinking and values, thereby reflecting clear personal management styles. This study investigates whether MMC involves a management style and its mechanism. Taking all Chinese listed firms as our sample, we use natural language processing technology to extract their macroeconomic vocabularies from the Management Discussion and Analysis (MD&A) section of their annual reports and construct an MMC measurement index to test whether MMC has a management style. The results show a clear form of individual “imprinting,” that is, a management style, in MMC. Furthermore, this management style is significantly affected by the personal characteristics of managers. We find that managers' academic qualifications and overseas experience are positively correlated with the effect of management style and that the government background of managers is significantly negatively correlated with the effect of management style. Moreover, their managerial ability is significantly positively correlated with the effect of management style in MMC. Our study contributes to the literature in several ways. First, previous studies identify a firm's management style in its investment decisions, risk preference, tax avoidance, earnings performance and information quality. This study demonstrates that MMC also has a management style, indicating the differences in the effect of management style between different companies. This finding enriches the literature on the impacts of management style on the decision-making of Chinese enterprises. In addition, this study provides a new research perspective on managers' personal characteristics and related attributes. It provides an important reference for companies to choose suitable managers and offers empirical evidence to better understand the decision-making process of Chinese companies. Second, previous studies have measured managerial ability in terms of individual education level, test scores, etc. (Borghans et al., 2008; Almlund et al., 2011). Firm-level research traditionally uses managers' personal experience to construct a managerial ability index, which quantifies the level of executive capability in terms of general purpose skills or professional skills (Custódio et al., 2013; Mishra, 2014; Zhao Ziye et al., 2018). From the new perspective of managers' ability to interpret and respond to changes in the macro environment, our study uses the macro environmental information contained in the MD&A section to construct the MMC index, which enables us to examine the specific reasons for the formation of managers' macro cognitive abilities. Third, this study expands related research on managerial cognition. Prior studies have mainly focused on managers' cognitive abilities from the perspective of individual demographic characteristics. In contrast, this study measures managers' cognition of macro environmental information from the perspective of the macro environment, enriching research on managers' cognition. Finally, this study has practical significance. In a complex and changing economic environment, managers with higher MMC benefit their firms by allocating limited resources to more profitable projects. At the same time, giving the information asymmetry in the labor market, companies can screen senior managers based on their personal characteristics and hire managers with high MMC to improve the efficiency of enterprise decision-making.
罗勇根, 饶品贵, 陈灿. 高管宏观认知具有管理者“烙印”吗？——基于管理者风格效应的实证检验[J]. 金融研究, 2021, 491(5): 171-188.
LUO Yonggen, RAO Pingui, CHEN Can. Does Managerial Macro-cognition Have “Imprinting”？ Evidence from the Effect of Management Style. Journal of Financial Research, 2021, 491(5): 171-188.
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