Linking managerial capital with explorative strategy and growth in China

Abstract

Purpose This study aims to consider the effect of managerial capital (psychological, intellectual and social) on business strategy and growth. Per upper echelon theory, managerial capital enables high-level managers to drive firm performance in uniquely personal ways. The authors test the effects of managerial capital on a manager’s dominant regulatory focus (promotion and prevention balance) and whether having an explorative strategy mediates the relationship between dominant regulatory focus and the percentage of business unit growth expected from new lines of business. Design/methodology/approach Survey data from a sample of 211 Chinese executives were used to assess measurement and test hypotheses by means of structural equation modeling. Findings Results indicate that the direction of business strategy is influenced by the balance between promotion and prevention focus, which is shaped by managers’ risk propensity, product-market familiarity and bonding tie diversity. Explorative strategy, in turn, mediates the relationship between dominant regulatory focus and expectations of innovative growth. Originality/value Examining the effects of managerial capital on innovative firm strategy reveals the role of psychosocial traits of decision-makers.