The social influence of executive hubris: cross-cultural comparison and indigenous factors.
| Verfasser | Li, Jiatao |
| Posten | RESEARCH ARTICLE |
Abstract:
* Executive hubris--an important psychological bias--affects the strategic decisions of a firm as well as their implementation. Yet executive hubris brought about by social influence in different cultural environments is not well understood.
* Anchored in the upper echelons theory and the cross-cultural management literature, this study investigated the social influence of executive hubris among peer executives in two different cultural contexts: China and the US.
* Using a large set of survey data on Chinese firms and a large archive of US firm data, we found that the social influence of executive hubris is stronger in the Chinese context than in the US. The social influence among Chinese executives tends to be moderated by their similarity in categorical factors indigenous to the Chinese context: executives who are managing state-owned firms or were politically appointed are more strongly influenced by each other than by those managing non-state-owned firms or were not politically appointed.
* We illustrate that cultural contexts give rise to differences in the social influence of executive hubris.
Keywords: Executive hubris * Social influence * Cross-cultural comparison * Indigenous management * Chinese and US firms
Introduction
The upper echelons theory predicts that the characteristics of corporate executives can be influenced by "all potential environmental and organizational stimuli" (Finkelstein et al. 2009, p. 45). Among all those executive characteristics, executive hubris, generally defined as an executive's exaggerated self-confidence or pride (Hayward and Hambrick 1997; Hiller and Hambrick 2005), has attracted its fair share of attention (Hayward et al. 2006; Li and Tang 2010). While the theory implicitly assumes that executive hubris can be socially influenced in different ways depending on the social/cultural context, exactly how that happens has never been explored.
We test the upper echelons theory's assumption that executive characteristics are subject to social stimuli (Hambrick and Mason 1984). Exploring the social influence of executive hubris is important because executive hubris has important implications for firm strategy and performance (Li and Tang 2010). Since the social context in which an individual is embedded influences how he/she behaves by providing stimuli to shape his/ her thoughts and behavior (Bandura 1977; Festinger 1954; Salancik and Pfeffer 1978), it would be meaningful to establish in what manner and under what circumstances the emergence of executive hubris is driven by the contextual stimuli received. This study was designed to fulfill this goal.
This study integrates the upper echelons theory and the international management literature by presenting a culturally embedded social influence model of executive hubris. It is based on the presumption that social stimuli play an important role in influencing the collective sense-making of decision makers (Ashkanasy et al. 2000; Salancik and Pfeffer 1978). Social stimuli may play a more important role in a social context that emphasizes collectivism than in one that emphasizes individualism. Therefore, we predict in particular that an executive's hubristic bias is subject to social stimuli (Chattopadhyay et al. 1999; Morland et al. 1996), the influence of which will be more salient in China, a traditionally collectivistic society, than in the US, where individuality is valued (Hofstede 1980; Parboteeah et al. 2005).
We further suggest that social influence varies across groups on the basis of certain social categories that are indigenous to the particular context. Members in the same social category see themselves as members of an in-group and others as members of an outgroup (Turner 1975; Tajfel and Turner 1986). Executives are likely to be under the influence of peers in the same social category. This study continues along this line of inquiry by examining whether social categories, defined based on certain factors indigenous to the Chinese context, moderate the social influence of executive hubris.
This study contributes to the literature in the following respects. First, we revisit the upper echelons theory to examine the social influence of executive hubris. In Hambrick and Mason's (1984) original framework, the characteristics of top executives are shaped by the social context in which the executives are embedded (Finkelstein et al. 2009). While the effects of executive- and firm-level factors on executive hubris have been extensively explored (Forbes 2005; Hayward and Hambrick 1997; Malmendier and Tate 2005), the impact of social contexts has not yet been considered empirically. A firm's immediate external environment should certainly have an influence on an executive's psychological bias (Hambrick and Mason 1984; Salancik and Pfeffer 1978). Consequently, in examining the social influence of executive hubris, this study partly addresses a void in the literature.
Second, this research extends the study of executive hubris to international management by highlighting executives' cultural values. Researchers contend that cultural values play a central role in shaping the managerial view of the environment and appropriate strategic responses (Hambrick and Brandon 1988; Geletkanycz 1997). Consequently, they are posited to affect the extent to which social influence impacts the managerial bias of corporate executives. Prior research on executive hubris has paid little attention to the cross-cultural comparison. This study specifically investigates how the social influence of psychological bias among peer executives varies across social contexts characterized by distinct cultural values. We contribute to both the upper echelons theory and the international management research by presenting a culturally embedded model of the social influence of executive hubris.
This research also aims to contribute to the indigenous management research through analyzing peer groups in terms of social categorizing factors indigenous to the Chinese context. Indigenous research can be classified based on the nature of a local phenomenon and the theoretical perspective adopted (Li et al. 2012). Our approach fits into the category of "a comparative perspective with the potential to discover one or more novel constructs unique to a locality, and this type of research aims to modify and revise Western theories" (Li et al. 2012, p. 9). Our combination of the general propositions with the peculiarities of our empirical setting has provided us with an excellent opportunity to contribute to our understanding of the social influence of executive hubris in an emerging economy such as China's. This echoes the call for more contextualization research in the organizational management field (Tsui 2007).
To begin with, we provide the theoretical background and develop hypotheses related to the process through which hubris is socially influenced among executives. We then propose that this influence is more salient in China with its collectivistic culture than in the US with its individualistic culture. We further propose that the social influence of executive hubris in China may depend on certain indigenous factors categorizing peer executives in the Chinese context. Our hypotheses are tested using two large datasets describing executives of manufacturing firms in China and of public firms in general in the US. The implications for research in the upper echelons theory, international management, and indigenous management are discussed.
Theory and Hypothesis Development
Executive Hubris
Executive hubris is a managerial bias that causes one's own judgment to deviate from objective standards (Hayward and Hambrick 1997; Hayward et al. 2006; Hiller and Hambrick 2005). When an individual's confidence in the accuracy of his/her own predictions exceeds the actual accuracy of those predictions, he or she may be considered hubristic (Hilary and Menzly 2006; Klayman et al. 1999; Moore and Healy 2008; Simon and Houghton 2003). Hubris is often prominently exhibited among corporate executives (Hiller and Hambrick 2005).
Executive hubris is related to other managerial positive self-regard factors including overconfidence (Simon and Houghton 2003), optimism (Hmieleski and Baron 2009), and narcissism (Chatterjee and Hambrick 2007, 2011). The common theme of these factors resides in the basic, fundamental assessment an executive makes of him/herself, especially an overly positive one (Hiller and Hambrick 2005). But different from the other three factors, as suggested by Chatterjee and Hambrick (2007, p. 357), hubris is a managerial bias induced by some combination of confidence-buoying stimuli and one's narcissistic tendencies, while lacking key elements of the narcissistic personality such as a sense of entitlement, a preoccupation with self, and a continuous need for affirmation and applause. To synthesize all related efforts, based on the fundamental work by Judge and his colleagues (Judge et al. 2002; Judge et al. 1997), Hiller and Hambrick (2005, p. 306) proposed grouping all these dimensions of managerial bias under a single overarching conceptual umbrella known as "executive core self-evaluation (CSE)". The well-studied concept of executive hubris corresponds exactly to a hyper level of executive CSE.
Researchers have long investigated the potential consequences of executive hubris on firm decisions and outcomes, both conceptually and empirically. Their findings have generally shown that executive hubris may lead to more value-destroying M&A activities (Malmendier and Tate 2008), greater acquisition premiums (Hayward and Hambrick 1997), higher chances of venture failure (Hayward et al. 2006), poorer performance (Lowe and Ziedonis 2006), investment distortions (Malmendier and Tate 2005), excessive risk taking (Li and Tang 2010; Simon and Houghton 2003), and firm innovation (Tang et al. 2012). Most of these previous efforts have tended to...
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