Academic journal article Journal of Small Business Management

CEO Regulatory Foci, Environmental Dynamism, and Small Firm Performance

Academic journal article Journal of Small Business Management

CEO Regulatory Foci, Environmental Dynamism, and Small Firm Performance

Article excerpt

This research proposes and tests that regulatory foci of small business chief executive officers (promotion focus and prevention focus) relate to firm performance differentially when levels of environmental uncertainty vary. Results suggest that a promotion focus is positively related to firm performance, whereas a prevention focus is negatively related to firm performance. Further, these relationships are moderated by the degree of environmental dynamism such that in more dynamic environments, the relationship between promotion focus and firm performance is strengthened, whereas the relationship between prevention focus and firm performance is negatively affected. The reverse was found for less dynamic environments. Theoretical and practical implications as well as future research avenues are offered.

Introduction

Much of the popular and academic management literature, particularly upper echelons theory (UET) (Hambrick and Mason 1984), suggests that top executives influence the performance of their firms by infusing various aspects of themselves (their values, personality, motivations, and experiences) into multiple aspects of the firm and its functioning. The impact of these executive characteristics is particularly salient in small firms and dynamic environments in which the executive may have more discretion over decision-making (Hambrick and Finkelstein 1987). Though the effect of executive characteristics, particularly demographic characteristics, on firm performance has been well documented in UET literature (Carpenter, Geletkanycz, and Sanders 2004; Hambrick 2005), we do not have a complete understanding of how different chief executive officer (CEO) values, personalities, motivations, and experiences influence small firm performance (Hambrick 2007; Lawrence 1997). Though UET has traditionally been concerned with the entire top management team (Hambrick and Mason 1984), several pertinent extensions to UET have recognized the importance of considering the impact of CEO characteristics alone, or, as Hambrick (2007) notes, "the upper echelons perspective does not require a focus on TMTs, and a number of significant contributions have examined CEOs or other individual leaders" (p. 334). Hambrick (2007) is correct that many studies uncovering important relationships between CEO demographic characteristics and important firm outcomes have been published of late, including the impact on firm performance, organizational change, strategy, and structure (Cannella, Finkelstein, and Hambrick 2008; Carpenter, Geletkanycz, and Sanders 2004; Finkelstein and Hambrick 1996; Hage and Dewar 1973; Jensen and Zajac 2004; Marks and Mirvis 1998a, 1998b; Miller and Droge 1986). Despite the rich line of inquiry that illustrates the importance of CEO demographic characteristics, comparatively, little work has examined the impact of non-overt characteristics such as executive motivations that might relate to firm performance. We propose that CEOs' motivations influence organizational goals and, ultimately, whether or not the organization meets these goals within its operating environment. We believe this is particularly true in small firms where the CEO exercises more control over the firm (Lawrence and Lorsch 1967), and as such, their influence is particularly important in regard to the performance of their firm.

Regulatory focus theory (Higgins 2000, 1997) is a particularly apt framework to utilize in this context because it encompasses two distinct motivational dispositions that are known to differentially influence individual behavior: promotion focus (i.e., eager focus for gains and accomplishments) and prevention focus (i.e., vigilant focus for duty and responsibility) (Higgins 2000; Wallace and Chen 2006). Regulatory focus theory can help explain how executives influence firm performance, particularly for small firms in dynamic markets because uncertain environments and limited response times affect managerial decisions (Barr, Stimpert, and Huff 1992) and because top managers have, as well as exercise, more control in smaller firms (Lawrence and Lorsch 1967). …

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