The Influence of Top Managers Cognitive Frames and Organizational Experience on Firms Risk-taking Decisions and Performance

Abstract

The paper argues that top managers cognitive frames, or their mindsets in interpreting environments and driving actions, can have significant interaction relationships with their firms organizational extreme performance experience—success and failure—in affecting firms subsequent risk-taking decisions as well as their failure rate. The primary logic under the idea was that firms strategic decisions and performance are outcomes of the firms multiple organizational and managerial factors, such as firms behavioral characteristics manifested in their decision making processes, top decision makers cognitive biases stemming from firms organization-level experience, and the focus of the top decision makers attention headed toward either the status quo or change. The paper investigated the research idea by analyzing a sample of U.S. commercial banks which initiated their operation between 1976 and 2004 and by using analysis tools including content analysis, regression analysis, and event history analysis methods. Empirical results of the investigation partially supported the hypotheses that top managers cognitive frames for change positively interact with organizational success and failure experience in increasing firms risk-taking decisions and in decreasing firms failure rate more strongly than cognitive frames for the status quo. In addition, the power the top managers cognitive frames has in influencing firms decisions and performance was identified to be stronger in firms organizational failure experience than in success experience. Though some hypothesized propositions were failed to be supported, the general idea of the propositions that top managers attention has the power to make difference in the influence which firms organizational experience exerts on firms strategic moves and performance was empirically reconfirmed. In conclusion, this research suggests some future research agenda for validating and advancing propositions of the attention-based view of the firm that the role of top managers and their attention is not limited to its long-known function of receiving external stimuli, but encompasses the function of exercising significant influence on creating firms environment, which is essential for firms subsistence and further improvements in todays management environment.