Leadership Determinants of Myopic Management: Implications for Marketing

Thesis Defence
"Bank-firm relationships, competition and asymmetric information"

Giovanni Visentin, PhD candidate in the PhD programme ESCP, publicly defended his PhD thesis in Management Sciences.

21 December 2022
ESCP Business School Campus République

Abstract

This dissertation explores how the Big Five personality traits of Chief Executive Officers (CEOs) and Chief Marketing Officers (CMOs) influence the likelihood of myopic management, which consists of year-on-year cuts to Advertising and R&D budgets with no other justification than boosting short-term profitability at the expense of long-term value creation.

It does so in three distinct studies, using data on executives’ Big Five traits, Advertising, and R&D budgets of S&P 1500 firms between 2000 and 2020.

The first study examines how CEOs’ Big Five traits affect the occurrence of myopic management. I argue that greater CEOs’ extraversion and neuroticism - as opposed to openness and conscientiousness - will increase the likelihood of myopic management because of their greater disposition toward impulsive choices.

I also suggest that greater CEOs’ power will enhance this effect by allowing CEOs to push their own agenda despite opposition from other TMT members. Finally, I argue that the moderation of equity compensation, in the form of stock options and stock grants, will reduce CEOs’ likelihood to engage in myopic management by aligning their incentives with the goal of long-term value creation.

Results provide strong support for these arguments and indicate the importance of consistency between CEOs’ personality traits, corporate governance, andincentives mechanisms to reduce the occurrence of myopic management.

The second study builds on this basis, to explore how CEOs’ Big Five traits influence annual changes in Advertising and R&D intensity. I argue that measuring CEOs’ personality traits using a broader framework, such as the Big Five, allows to comprehensively map the effect of different facets of CEOs’ personality on strategic decisions.

I also suggest that prior firm performance will enhance or weaken this effect by triggering the activation of those traits that are more relevant to specific situational requirements.

Finally, this study develops and validates a novel linguistic tool to unobtrusively measure executives’ Big Five traits from their Twitter texts {tweets}. I argue that this tool, trained on timely and publicly available text data, combines the convenience of sourcing data from Twitter, with the advantages of being trained on third-rated Big Five specifically scored on a sample of CEOs.

Results provide general support for these arguments and indicate that measurement of executives’ personality from tweets yields convergent results with measures established in prior studies.

The third study builds on the first and the second ones to examine what CMOs’ Big Five traits can affect a marketing department’s ability to resist against myopic marketing management. I argue that CMOs’ who exhibit higher levels of extraversion, conscientiousness, openness, and agreeableness will reduce the likelihood of myopic management at their firms, because of greater leadership effectiveness.

I also suggest that higher levels of CEO power will weaken this effect by increasing marketing department’s subservience to the CEO, while greater market concentration will increase this effect, by enhancing the effect of CMOs’ own idiosyncrasies on their firms’ myopic marketing management.

Results provide some support for these arguments and show that CMOs’ personality may be an important element to consider in order to clarify previous mixed findings on the ability of the marketing department to prevent the occurrence of myopic management.

Jury