Cognitive complexity of top executive team members and firm performance
This research is formulated from the Upper Echelons (UE) perspective and proposes that high cognitive complexity and high cognitive heterogeneity of members of the Top Management Team (TMT) have positive effects on firm performance. According to the UE, key decisions that determine firm strategy are made by top executives whose interpretations of reality are constrained by their individual cognitive structures. The concept of cognitive complexity, from personal construct psychology, is used here to develop a measure that identifies how elements of firm strategy are evaluated in the minds of executives. The measure was applied on top management team members from a sample of firms in Colombia. Although the attained sample size was small, the application of a bootstrapping procedure produced robust estimations of the parameters of interest. The results offer support for the most important hypothesis in the research, regarding the existence of a positive effect of cognitive complexity on firm performance. No support was found for the hypothesized effect of TMT cognitive heterogeneity on firm performance, and neither for the proposed moderating effects of education and tenure. The contributions of the research stem from the actual measurement of the effects of psychological characteristics of executives on firm performance. Such effects are at the core of Upper Echelons theory but are seldom measured in practice, due to the difficulties involved in engaging top level executives in this kind of research. In this context, the finding of an effect of executives' cognitive complexity on firm performance is a valuable contribution to the literature.