Matter of strategic mis-fit: Management myopia and value destruction

Abstract

Scope and Method of Study: The purpose of this study was to examine relationships between three forms of management myopia (spatial, temporal and hubris) and value destruction, incorporating industry context as a moderating influence. Spatial myopia, temporal myopia and hubris are operationalized in terms of variables from three research perspectives---managerial cognitions, top management team (TMT) characteristics, and financial behavior. Value destruction was measured in terms of below average sales, net income and return-on-asset changes. The study involved 103 firms from 10 different industries. Approximately half of the firms were from higher growth industries and half from lower growth industries. Relationships were evaluated with regression analysis.

Findings and Conclusions: The results of the study support the relevance of TMT characteristics and managerial cognitions; however, variables from the different research perspectives yielded inconsistent and even conflicting relationships with firm outcome variables. The lack of agreement suggests that the influence of TMT characteristics and managerial cognitions may be more complex, and less direct than theory suggests. Consistent with theory, the moderating influence of industry growth rate was supported. Relationships between a number of TMT and cognitive variables and ROA change differed between high growth and low growth industries. The results also indicate that hubris (e.g., media praise) may encourage higher sales growth, but depress profitability. This finding is consistent with the results of prior studies addressing value-destroying strategic decisions of highly praised CEOs (e.g., Hayward & Hambrick, 1997).