Graduate and Postdoctoral Studies
Jesse H. Jones Graduate School of Business
Three essays on CEO cognitive complexity and organizational outcomes
Friday, April 7, 2017
to 11:00 AM
217 McNair Hall
CEOs' jobs involve a substantial load of information processing. This dissertation explores the organizational implications of CEOs' way of processing information, or cognitive style, in multiple contexts. I particularly focus on CEOs' cognitive complexity, or their degree of differentiation and integration of information, and examine how it influences their corporate strategies and performance outcomes not only in general business settings but also in high-growth environments as well as crisis situations.
The first essay discusses the implications of CEOs' cognitive complexity for firms' growth strategies. As CEOs with high cognitive complexity tend to perceive and use multiple dimensions in the informational environment and draw intricate connections among them, I argue that their information processing style aligns with the high information processing need of external firm growth strategies, represented by corporate acquisitions. On the other hand, CEOs with low cognitive complexity tend to have focused attention and use select dimensions of information in understanding issues and draw connections among those few constructs. This information processing style aligns with the information processing needs of internal firm growth strategies, represented by R&D investments and new product developments. As high industry growth creates more strategic opportunities and managerial discretion, such strategic discrepancy between high and low cognitive complexity CEOs is expected to widen as they invest more into their own strategic courses. Using CEOs' language use revealed in conference earnings calls with securities analysts, I find strong support for these predictions.
The second essay builds upon one of the major conclusions from the first essay and discusses the implications of CEO cognitive complexity and firm acquisitions in the context of the recent financial crisis. As high cognitive complexity CEOs' strategic tendency manifests in high volumes of corporate acquisitions in general situations, a positive relationship exists between the two prior to the crisis. While the financial crisis represented a period of high consolidation and financial constraint, I predict that those firms that have engaged in significant volumes of acquisitions prior to the crisis accumulated the experience and resources to repeat their course of acquisitions during the crisis, resulting in a positive relationship between pre- and during-crisis acquisitions. High volumes of acquisitions during the financial crisis are expected to allow the firm to capitalize upon their accumulated resources and opportunities, improving its financial performance. Furthermore, the gain of size through acquisitions during the crisis would allow organizations to achieve a status of being “too big to fail,” enhancing their likelihood of surviving the crisis. A series of analysis focusing on the financial sector and their CEOs largely support these predictions.
Finally, the third essay draws upon the second to examine corporate restructuring activities, represented by corporate acquisitions and divestitures, transitioning from the pre- to during-crisis period, the role of CEOs’ cognitive complexity therein, and their performance and survival implications. Extending the second essay’s findings, the current essay’s findings suggest that acquisitions and divestitures reinforced each other as organizations went through the financial crisis, with CEOs with high cognitive complexity allowing the previously-divesting firms to engage more in acquisitions during the crisis. Interestingly, each of these restructuring activities during the crisis influenced survival differently. Specifically, while firms that grew in size through acquisitions enjoyed higher performance and chance of survival, those that engaged heavily in divestitures were able to experience greater performance but lower chances of survival—confirming the institutional logic that some financial institutions, particularly in this crisis period, were rather “too big to fail,” than “too good to fail.”