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Article
Publication date: 24 December 2024

Zi Xuan Chan, Yibai Wang, Lin Yuan, Xiaoyun Chen and Yukun Feng

Building on upper echelons theory, this study explores the influence of managerial cognition on firm innovation during times of crisis. Specifically, we aim to disentangle the…

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Abstract

Purpose

Building on upper echelons theory, this study explores the influence of managerial cognition on firm innovation during times of crisis. Specifically, we aim to disentangle the concept of cognitive complexity by examining how CEOs’ cognitive depth and cognitive width differently influence their firms’ innovation outcomes. Additionally, we investigate how organizational slack moderates the impact of these cognitive attributes on innovation, providing a deeper understanding of the conditions under which managerial cognition drives firm adaptability in crises.

Design/methodology/approach

This study utilized a sample of 115 listed US firms ranked in the top 200 in terms of market capitalization share in 2020. We measured the key variables by analyzing text and archival data from interviews with CEOs, particularly focusing on their discussions regarding the impacts of the COVID-19 pandemic. Regression analysis was employed to test the hypothesized relationships in the research model.

Findings

The results reveal that under the crisis, CEO cognitive depth enhances firm innovation, while CEO cognitive width impedes firm innovation. Moreover, organizational slack weakens the positive relationship between CEO cognitive complexity and innovation.

Research limitations/implications

This study significantly contributes to and extends the established body of research on a leader’s cognition during a crisis. Our study goes beyond traditional views of cognitive complexity by highlighting the distinct impacts of two critical elements: cognitive depth and width, on decision-making processes. This study contributed to the innovative decision-making literature by opening up the black box behind the decision-making process of innovation during uncertainty. This underscores the multifaceted nature of cognitive processes in innovation, highlighting the interplay between cognitive depth, cognitive width and organizational resources in driving firm innovative outcomes during the crisis. We also broaden the temporal scope of empirical research on CEO cognition by gathering data from CEO interviews conducted during the COVID-19 pandemic.

Practical implications

This study reveals that when CEOs have a broader focus and attend to a wide range of information, their ability to quickly utilize firm resources for formulating competitive actions decreases during uncertainty. Consequently, it is crucial for CEOs to acknowledge the limitations of their attentional capacity. The allocation of their attention and information processing capacity has significant implications for their innovative decision-making processes, particularly in navigating through crises.

Social implications

Our study finds that excessive attention during times of crisis may not necessarily be beneficial to firm innovation. An excessive focus on problems can lead to scattered attention, impairing judgment and decision-making abilities. Moreover, excessive attention to problems may trigger panic and unnecessary stress, further impacting decision quality. High cognitive width can trap teams in short-term thinking and emergency mode, neglecting long-term strategies and opportunities such as innovation investment. Yet, firms with more slack resources can reduce the negative impacts of cognitive depth.

Originality/value

This study proposes a comprehensive cognitive model to understand managers’ decision-making during a crisis. The research posits that different dimensions of CEOs’ managerial cognition have distinct impacts on firm innovation in crisis environments. This study significantly contributes to the study of managerial cognition and innovation literature.

Details

Management Decision, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 12 August 2020

Zhi Li, Jiuchang Wei, Dora Vasileva Marinova and Jingjing Tian

This paper aims to explore the explanations of “information effect” and “agency effect” of corporate diversification with cross-industry knowledge under a crisis situation.

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Abstract

Purpose

This paper aims to explore the explanations of “information effect” and “agency effect” of corporate diversification with cross-industry knowledge under a crisis situation.

Design/methodology/approach

Based on an event study of 203 public companies’ crises in China between 2008 and 2018, the authors verify the information and agency effects of corporate diversification under a crisis situation by, respectively, examining the effects of interactions of corporate unrelated diversification with corporate transparency and knowledge deficiency attribution on the stock market’s responses to the crises.

Findings

It is found that corporate unrelated diversification serves as a buffer in protecting firm value while attribution of knowledge deficiency can be a burden. The buffering effect is stronger when the corporate transparency is higher but weaker when the crisis is attributed to be caused by corporate tacit knowledge deficiency.

Practical implications

Unrelated diversified firms should strengthen information communication with stakeholders so as to break down the stakeholders’ cross-industry knowledge barriers, and thus protect their own value at the crisis’ onset. Also, they can further buffer the loss by reducing stakeholders’ perceptions of the corporate tacit knowledge deficiency revealed in the crisis.

Originality/value

This study is the first to illustrate that the information and agency effects of corporate diversification strategy can be partially explained under a crisis situation, which provides meaningful insights about how firms can conduct knowledge management in their daily operations to deal better with corporate crises.

Details

Journal of Knowledge Management, vol. 25 no. 1
Type: Research Article
ISSN: 1367-3270

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