The cognition-reality gap: A contingency view of the CEO cognition/performance relationship empirically examined

This study links industry and firm context to the CEO psychological-to-performance relationship. This research is based on the view of managers as a locus of firm performance. Industry environments present firms with constraints and opportunities to which a firm must deploy its capabilities to create value. Managers influence the process of matching the firm to the environment, or the process of changing the environment by making decisions and/or not making strategic decisions (i.e., major administrative, domain and competitive choices). Environmental cues which managers identify as important, the way they interpret these cues, and the choices they make from these cues are shaped by cognitive and personality factors. While the effect of such factors has developed into an important research stream in strategy literature, examinations of boundary conditions for these factors are rare. This research examined and evaluated the impacts of important industry-level facets on the cognition-to-performance relationship by comparing CEO communications across industries. Industry turbulence and munificence are prominent industry factors in strategy literature. Their effect on the performance relationship of the psychological construct of optimism was studied. Cognition factors of ambivalence, passivity, and propensity to change were also examined. The CEO communications of 169 single-business publicly traded corporations were analyzed. Munificence was observed to lead to a positive moderation effect for the optimism-to-performance relationship, while leading to negative moderation for the propensity-to-change-to-performance relationship. Industry turbulence was observed to yield a negative effect on the passivity-to-performance relationship, while affecting a positive effect on the-propensity-to-change-to-performance relationship. Theoretical and managerial implications are discussed