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RESEA R CH AR TICLEAbstract: 0 ferent cultural environments is not well understood. A nchored in the upper echelons theory and the cross-cultural management literature, this ferent cultural contexts: C hina and the U S .0 larity in categorical factors indigenous to the C hinese context: executives who are managing 0 e hubris.Keywords: Manag I nt Rev (2013) 53:83–107DO I 10.1007/s11575-012-0164-x actorsJiatao Li · Yi Tang 17.01.2013 © S pringer Fachmedien Wiesbaden 2012 A sst. Prof. Y. T ang ()Department of Management and Marketing, T he H ong Kong Polytechnic University, H ong Kong, C hinae-mail: msytang@polyu.edu.hkProf. J. L iDepartment of Management, T he H ong Kong University of S cience and T echnology, H ong Kong, C hina 84 Introduction T he upper echelons theory predicts that the characteristics of corporate executives can al. 2009, p. 45). A mong all those executive characteristics, executive hubris, generally 1997; H iller and H ), has attracted its fair share of attention ( H ayward et al. 2006; L i and T ). While the theory implicitly assumes that executive hubris can how that happens has never been explored. subject to social stimuli ( H ambrick and Mason 1984 hubris is important because executive hubris has important implications for 2010). S ince the social context in which an her thoughts and behavior (Bandura 1977; Festinger 1954; S alancik and Pfeffer 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. T his study T his study integrates the upper echelons theory and the international management lit sense-making of decision makers ( A shkanasy et al. S alancik and Pfeffer S ocial stimuli may play a more important role in a social context that empha ; Morland et al. collectivistic society, than in the U S , where individuality is valued ( H We categories that are indigenous to the particular context. Members in the same social T urner 1975; T ajfel and T urner 1986 ence of peers in the same social category. T his study continues along this line of inquiry T his study contributes to the literature in the following respects. First, we revisit the context in which the executives are embedded (Finkelstein et al. extensively explored (Forbes 2005; H ayward and H ; Malmendier and T ate 2005 psychological bias ( H ambrick and Mason 1984; S alancik and Pfeffer C onse- 85 quently, a void in the literature. S econd, this research extends the study of executive hubris to international management a central role in shaping the managerial view of the environment and appropriate strategic responses ( H ambrick and Brandon 1988 1997). C onsequently, they are posited tives. Prior research on executive hubris has paid little attention to the cross-cultural com e contribute to both the upper echelons theory and the international management research T his research also aims to contribute to the indigenous management research through enon and the theoretical perspective adopted ( L i et al. , and this type of research aims to modify and revise West 2012, p. of the general propositions with the peculiarities of our empirical setting has provided us with an excellent opportunity to (Tsui 2007 T o begin with, we provide the theoretical background and develop hypotheses related executives in the C hinese context. Our hypotheses are tested using two large datasets the U S . T he implications for research in the upper echelons theory, international manage E xecutive H ubris objective standards ( H ayward and H ambrick 1997; H ayward et al. H iller and H ambrick 2005 dictions exceeds the actual accuracy of those predictions, he or she may be considered ; Klayman et al. ; Moore and H ealy 2008 S imon and H oughton 2003). H ubris is often prominently exhibited among corporate executives H iller and H ambrick 2005 86 E xecutive hubris is related to other managerial positive self-regard factors including ), optimism ( H mieleski and Baron C hatterjee and H 2011 T he common theme of these factors resides in the basic, fundamental assessment an executive makes of him/herself, especially an overly positive one ( H iller and H ). But different from the other C hatterjee and H ambrick (2007, p. 357), hubris is a mana- tendencies, while lacking key elements of the narcissistic personality such as a agues (Judge et al. ; Judge et al. H iller and H ambrick (, p. proposed grouping all these dimensions of managerial bias under a single overarching concept of executive hubris corresponds exactly to a hyper level of executive CSE Researchers have long investigated the potential consequences of executive hubris shown that executive hubris may lead to more value-destroying M& A (Malmendier and T ), greater acquisition premiums ( H ayward and H ), higher chances of venture failure ( H ayward et al. 2006), poorer performance ( L owe and Ziedonis ), investment distortions (Malmendier and T sive risk taking ( L i and T ang 2010; S imon and H oughton 2003 ( T ang et al. 2012 the important antecedents of executive hubris. H ayward and H ambrick ( ) revealed ) demonstrated that heavy investment in dynamic resources, such as human resources, is an example of such an illusion. Forbes ( ) suggested that having an abstract reference point can lead to hubris, and scholars have previously established that market uncertainty can generate such a reference point for executives ( A licke et al. ; Wein ) concluded that superior prior performance can ) posited that the ignored the role of social contexts. I that social information affects individual perceptions, attitudes, and behavior ( S and Pfeffer A lso, as has been observed with the mass adoption or mass abandonment of strategic actions ( A hmadjian and Robinson ; Rao et al. ), an individual’s ( C hattopadhyay et al. ; Weick T he levels of hubris of executives facing the 87 executive hubris as one type of psychological bias. T he idea that the contextual environment faced by executives can shape executive hubris is rooted in the social information processing ( SI P) theory. T he underlying premise of to their social context and to the reality of their own past and present behavior 1978, p. 226). T he SI P framework serves to draw ing attitudes, behavior, and perceptions (Zalesny and Ford I ndividual attitudes or perceptions can be understood by examining the informational and social environment in which the individual is embedded (Pfeffer T he SI P theory has been used to explain 1983 C ), procedural justice and distributive justice (Glodman 2001), and antiso 1998). S imilarly, we predict that individual A s mentioned before, hubris has been suggested as a type of psychological bias L uthans and Youssef ), and may arise from both the personality of the individual H iller and H ambrick 2005). I tantly, and H ambrick () suggested that media praises may drive an executive to become more hubristic. A ccording to the SI P theory, social information can affect the way individuals understand and shape their needs, values, and perceptions on the basis of their We therefore predict that social information lowing this logic, executives in the same social context exposed to the same set of social T he peer group of an executive is a social group consisting of other executives who Peer executives are embedded in the same context as the focal executive. S ome key dimensions of the business environment, including industry and geographic boundaries, 2005). T he social information avail themselves. T his helps to promote the exchange of common social information. T heir collective interpretation of a particular social stimulus may enhance their shared understanding of this piece of common social information (Romanelli and Khessina T collective receiving and interpreting of common social information create an opportunity executives. T illustrate this, consider the rising property prices in C hina. Despite the warnings of the central government, the media, and the analysts of overpricing or the imminent burst of property price bubbles in C hinese cities ( ), property developers 88 do not seem to share such concerns. For instance, Zhi-qiang Ren, C hairman of the state- , and any predication about the decline of housing Chinese Business Times 2010). S uch hubris shared by many C nese real estate businessmen is engendered by the common social information they have received from their immediate task environment: low interest rates and increased bank % of Xinhua 2010 T subjective interpretations of events are affected by the same salient and relevant social - Hypothesis 1a: T he hubris level of a focal executive is positively associated with the - measures the degree to which a culture prefers autonomous vs. interdependent actions ( H ofstede 1991; T riandis 1995 personal interests are given greater importance than the needs of the group. C tivism, on the other hand, is predominant when the demands and needs of the group take precedence over individual interests (Wagner ; Wagner and Moch We relevant to our context. For instance, I lies and colleagues (the affective linkage between an individual and the other team members is stronger in a more collectivistic context. I mportantly, prior research has suggested that this cultural 1997 executive’s information is worth to the individual which in turn depends crucially on whether the individual is embedded in an individualistic or collectivistic culture. T his is because collectivistic cultures expect executives to consult their in-group thoroughly prior to making decisions ( T riandis 1995). A ccordingly, executives in these cultures tend to form beliefs and attitudes that are based on social consensus ( C rossland and 89 H ambrick 2007; S mith et al. I n contrast, in a cultural context where individualism is dominant, individual executives may not pay so much attention to social information as how others behave is considered less relevant to their own decision making. I alistic cultures, executives will tend to have higher self-reliance, and will form beliefs and collectivism dimension: C hina vs. the U S . C hina is known to have a collectivistic culture, while the U S is generally believed to have an individualistic one ( C hen 1995; E arley 1989 hubris will be more salient among C hinese executives than among U S executives.Hypothesis 1b: T he positive relationship between the hubris level of a focal executive and the hubris levels of peer executives is stronger in the C hinese context than in the U S context. T he Factors I ndigenous to the C hinese C ontext n received from their task environments. H owever, the degree to which this bias is shaped by the social information is likely to vary. I n the same in the C hinese context, we focus on certain factors indigenous to the C hinese context that identity perspective, and suggesting that one mechanism through which social information affects executive hubris is with the individual executives weighing information obtained from peers on the basis of how categorically similar in the C hinese context they are to one another. S ocial information differs in terms of both salience (when individuals can be immediately aware of the information) and relevance (when individuals can evaluate the infor Both the salience and relevance of social information that individual decision makers receive from the context they are facing affect their managerial bias. S alancik and Pfef 226) insightfully pointed out that the effect of social information depends al. 2010; S alancik and Pfeffer ). We propose that due to their shared social identity, the social information received by peer executives belonging to the same social category hubris thus becomes stronger when the focal executive is in the same social category as a subgroup of peer executives. 90 and T urner 1985). I ndividuals classify themselves and others into in-groups and out- in the social environment ( A shforth and Mael 1989). Peer executives can also be divided ple identify themselves more with those in similar social categories, and treat them as in-group members ( T ajfel and T ). Peer executives come from heterogeneous subgroups, and the focal executive may be more or less proximate to different subgroup similar category, and their attitudes or beliefs are then apt to converge ( T ajfel and T urner 1985 ence of executive hubris thus tends to be moderated by whether or not the focal executive is in the same social category as certain peer executives. Prior research has suggested (Dahlin et al. 2005). T he SI P theory further suggests that the impact of social information social information at hand ( S alancik and Pfeffer ). When the social information stronger. Members in the same social category will see each other as in-group members and consider each other more favorably ( H oward and Rothbart 1980; Robbins and Krueger 2005). I n contrast, they will consider those in a different social category from T his suggests that an individual will consider the social information shared with those in the same social category as more salient and relevant to his/her immediate situation. T herefore, arguments, we propose that as the difference between the focal executive and his/her peers (in terms of the social categories they belong in) decreases, the social We indigenous to the C hinese context. T he peculiar characteristics of the C hinese economy - the world, we argue that these two factors are much more salient in the C hinese context - 91 2007 2007). same type of ownership are more likely to treat each other as in-group members. I n ent status levels and opportunities of access to critical resources (Konai S trange et al. 2009). C hinese S O E s may enjoy preferential treatment not only in input factors and C hang and Wang ), but also in the capital markets (Brandt and L ). For example, stock market regulators may extend listing privileges S O E s based on political rather than economic considerations (Wang et al. C hi-nese S O E s may also enjoy privileged access to bank loans and product markets which are Maskin 1995 would tend to converge among executives of S O E s. For example, again in C hinese real estate market, the excessive credit created by banks is one of the leading causes of the property price bubble. Most of the C executives are highly likely to identify with each other through the C ommunist Party or 2011 I n the C hinese context, since executives of S O E s tend to identify more this group of executives is stronger. I n C hina, the government continues to play an active role in resource allocation. S o an executive’s 2006; L uo et al. 2001 executive’s tions is whether or not he/she was politically appointed by the government (Fan et al. A typical example of a politically appointed executive in a non- S O E would be the executive of a township or village enterprise appointed by the local branch of the ; Walder I t is normally easier for an executive who was politically appointed to build up political ties with important government agencies I n C hina, as in other emerging economies, political ties are considered ( H ). Politically appointed executives should have more political ties, this logic, an executive should identify more with peers who are similarly appointed, politically or otherwise. 92 Hypothesis 2b I n the C hinese context, since politically appointed executives tend to identify more with each other than with those who were not politically We used two datasets, with distinct contexts, data collection methods, and measures of executive hubris, to test our predictions. T his way, a cross-cultural comparison is pos survey conducted in 2000. I n the survey, a questionnaire was mailed out to each of 15,000 between respondents and non-respondents. T the comparability of the industry backgrounds while avoiding excessive loss of generality, this study focuses on the 3,073 industries. T he sample was constructed from the intersection of the C OMPU STAT data-base and the First C all C ompany I ssued Guidelines database over the period 1993–2010. C hinese E Executive Hubris MeasureFor the dataset of C hinese executives, following L i and T ), the deviation of performance was used to measure executive hubris. I n the survey, each CE O was 93 T he actual performance was measured by return on sales (RO S ) for that same half year, CE O in the survey. S ince both the subjectively anchored evaluation and the concretely anchored one depended strongly on the industry, both values were industry. T the two measures comparable, both the subjective evaluation and greater the executive hubris.The Hubris Level of Peer Executives T hubris level of peer executives was measured by the average hubris scores of peer location have been suggested as important criteria in determining social cat T he formula we used to determine the hubris denotes the hubris scores of all sampled CE Os in a cell of industry, location, or a combination of the two, CE O j, and n is the number T he two moderating factors indigenous to the C executive political appointment, A bout 46 % appointed. Firms controlled by the state or having a politically appointed CE O were other group. T hubris level of a peer executive in the same subgroup CE Os in that subgroup based on different social cat Control Variables trolled for in the models. We controlled for CE O age and education level. CE reported in the survey. CE O education was measured by a categorical variable ranging from 1 to 6 indicating an ascending level of formal education. H ow powerful a CE O is so a dummy variable indicating whether the CE O also served as the chairman of the board d chair-CEO duality n  i=1HiHj n1 , 94 (Bourgeois S ingh 1986 ). R&D intensity was computed as the ratio of R&D expenditure to sales. H R investment was represented by the ratio of training S E Executive Hubris MeasureWe improve upon the measure of executive hubris in the C hinese executive data by taking forecast error. Previous research has used management forecast data to indicate managerial self-potency (Ben-David et al. T op executives (normally CE Os and T versky 1995). T he more positive the management forecast is in comparison with ing this logic, executive hubris was measured by the deviation of the earnings forecast scaled by the absolute value of earnings performance. T hat is, executive made multiple earnings forecasts in one year, we take the average of those forecasts. We collected management earnings forecast and actual earnings data from the C all C ompany I With hubris levels of peer executives - lagged peer hubris variables. T he predictors and the results were consistent with those Control VariablesWe We also collected individual-level controls including CE O 95 duality and CE O tenure from the I RR C ( I nvestor Responsibility Research C enter) board composition database. H owever, if we include the two new variables, after the intersec consistent with the earlier ones. S doesn’t A nalytical Models - neity, be formulated as , = 0 + 1 +  + , where i ) that captures all unobserved, time-constant factors that affect A s standard errors by clustering them at the industry level (the 2-digit SIC code). T ables present descriptive statistics and correlations for the variables for the two T he correlations do not reveal any serious multicollinearity, showing mean vari -tive data respectively.Models 1–3 in T able present the main effect of peer executive hubris on the focal CEO’s 1 Model 1 includes the hubris levels of peer - p  p  p  0.001). A ll these results render support to H ypothesis 1a. T able presents the results for the U S executive data. T hrough Models 4–6, we found U S context is not as salient as it may be in the C hinese context. T herefore, H ypothesis 1b is also supported. T able presents the results on the moderating effects of categorical factors indigenous - 96 Variable S .D.123456789101213 E xecutive hubris . Peer hubris (industry * location)0.010.700.07 0.160.130.22 0.210.120.300.06 E 47.079.010.040.01 0.016. E 3.280.93 0.01− 0.04− 0.02− 0.09− 25.5917.54 0.08− 0.04− 0.03− 0.070.1 8.123.050.03 0.01− 0.01− 0.080.240.10.470.430.130.02 0.070.01 0.05− 0.17− 3.427.09 0.03− 0.01− 0.010.00 0.03− 0.04− 0.0611. H 1.333.92 0.04− 0.02− 0.01 0.03− 0.05− 0.04− 0.060.54 CE 0.370.480.070.030.050.08 0.01− 0.06− 0.04− 0.020.01 13. S 0.460.50 0.09− 0.09− 0.05− 0.050.240.410.19 0.18− 0.07− 1− 0.480.50 0.05− 0.10− 0.04− 0.080.200.290.18 0.13− 1− 1− 0.49 812; correlation coef�cients with magnitude greater than 0.04 are signi�cant at the p 0.05 level Table 1: Descriptive statistics and correlation of variables ( C hinese executive data) 97 p  8 supports H ypothesis 2a. ( p  ng the interaction involving the hubris levels of CE Os of p  Model 9 includes instead representing both politically appointed and non-politically appointed peers are pos p  of the hubris levels of politically appointed CE Os with the status, be it politi ( p  ng the interaction involving the hubris of non-politically p  0.001). I high correlations between the moderators and their component variables could introduce 2002). T for this potential problem, we repeated the interaction tests by mean-centering the component variables in the interaction terms ( A iken and West T he results were consistent with the ones pre-sented here.2 mental stimuli ( H ambrick and Mason ), understanding how the psychological char ed in further developing the upper echelons theory. T his study sheds light 1980; T riandis 1995). tends to be positively correlated with the hubris levels of his/her peers. Table 2: Descriptive statistics and correlation of variables (U S Variable S .D.1234567 E xecutive hubris0.120.77 0.110.480.01 0.120.210.040.33 0.120.160.030.250.17.364.09 0.01− 0.04− 0.08− 6.751.88 0.000.00 7. Firm slack0.371.16 0.04− 0.03− 0.08− 0.03− 0.00− 8. R&D intensity0.070.37 0.04− 0.02− 0.03− 0.01− 0.05− 0.07 3,760; orrelation oef�cients ith agnitude reater han .02 re igni�cant he p 0.05 level 98 - similarity between the focal executive and his/her peers in terms of some categorical for future research in the upper echelons theory, cross-cultural management, and the I t should be noted that the two analyses (on the U S and C hina) conducted in this study - Table 3: O LS estimates of C hinese executive hubris (main effect)VariableModel 1Model 2Model 3 CE 0.006*0.005*0.006*(0.003)(0.003)(0.003) CE (0.025)(0.025)(0.026) CE O chair-board duality (yes = 1)0.120*0.122*0.137**(0.047)(0.047)(0.049) 0.003− 0.003− (0.001)(0.001)(0.001) 0.035***0.033***0.032***(0.008)(0.008)(0.009)0.387***0.371***0.377***(0.053)(0.053)(0.057) 0.005− 0.005− (0.004)(0.004)(0.004) H R investment 0.013− 0.012− (0.007)(0.007)(0.007) S tate ownership (yes = 1) 0.173− 0.148− (0.054)(0.055)(0.057)appointment (yes = (0.052)(0.052)(0.055)0.112*** C onstant 0.613− 1− (0.164)(0.164)(0.172)15.61***13.48***10.87*** A dj. R20.0510.0440.037*p 0.05, 0.01, .001; two-tailed test 99 nature. H owever, we do believe this study paves the way for future research on the cross- 3 A tion of this study is that cultural contexts give rise to differences in implications ( H ayward and H ambrick 1997; H iller and H ambrick 2005). C omplementing 2008; Forbes 2005 two cultural contexts: C hina and the U S . We offer evidence in support of the view that leaders and strategic decision-makers ( H ambrick and Mason 1984; S chneider 1989). T he than in the U S , an individualistic culture. factors in affecting the adoption of socially illegitimate beliefs. I ndeed, modesty and humility are traditionally valued in C societies (Bond et al. ; White and C han 1983). I n contrast, hubris and arrogance, especially in publicly visible individuals such as the executives in our study, are generally much more likely for the focal individual to also be hubristic. A n interesting paradox Table 4: �xed-effect effect)Variable (0.005)(0.005)(0.006) 0.057*0.057*0.057(0.027)(0.028)(0.035)Firm slack resources Firm R&D intensity0.041 I ncluded I ncluded I Peer hubris (industry)0.028 C onstant (0.156)(0.168)(0.219)1893818942137606.19***6.20***10.27*** S andard errors clustered at industry-level (two-digit SIC ) *p 0.05, 0.01, .001; two-tailed test 100 VariableModel 7Model 8Model 9Model 10 CE 0.0050.0040.0050.004(0.003)(0.003)(0.003)(0.002) CE O education 0.0040.0040.019(0.029)(0.027)(0.025)(0.023) CE O chair-board duality (yes = 1)0.176**0.135**0.117*0.069(0.054)(0.051)(0.047)(0.042) 0.003− 0.002− 0.002− (0.002)(0.001)(0.001)(0.001) 0.033**0.027**0.023**0.016*(0.010)(0.009)(0.009)(0.008)0.479***0.429***0.358***0.257***(0.067)(0.063)(0.055)(0.050) 0.002− 0.003− 0.004− (0.004)(0.004)(0.004)(0.003) H R investment 0.007− 0.005− 0.010− (0.007)(0.007)(0.007)(0.006) S tate ownership (yes = 1) 0.156− 0.102− 16− (0.063)(0.059)(0.055)(0.049)appointment (yes = 0.0730.0530.0960.064(0.060)(0.057)(0.052)(0.047) S 0.143***0.005(0.012)(0.021) 0.455***0.972***(0.034)(0.047) S tate-owned peer hubris * state ownership0.201***(0.025) state ownership (0.065)Politically-appointed peer hubris0.452*** (0.030)(0.037) 0.441***0.967***(0.029)(0.037) hubris * political appointment (0.051) C onstant 0.667− 0.555− (0.180)(0.166)(0.149)209620962467246739.43***57.67***53.42***100.63*** A 0.1800.2750.2030.361 0.05, 0.01, .001; two-tailed test Table 5: O LS estimates of C hinese executive hubris (moderating effects of indigenous factors) 101 thus emerges: On the one hand, the C hinese culture is against executive hubris; but on efforts by indigenous management researchers. T his study has important implications for practicing managers as well. H ubris can e’s 2007; H ayward et al. 2006 - -encing hubris. T his makes it critical for top managers to choose the right role models hubris used in both datasets needs to be strengthened in future research. Previ-ous research has relied on more distal proxies such as media praise or self-importance H ayward and H ; Malmendier and T ate 2005). T he current study relies performance to measure executive hubris. We acknowledge that the appropriateness of the executive hubris measures is debatable. For example, executives may or an absolute level, which would render our measure inappropriate. Further, it is -mance, and the social comparison may play a role here: a downward comparison induces has not incorporated all of these possibilities in generating the executive hubris measure. Future research can better assess this executive psychological bias by using more direct psychometric tools, such as hyper core self-evaluation ( H iller and H ambrick 2005 T he other reason why our results should be interpreted with caution is that the C executive data used in this study were cross-sectional in nature. T to infer causality. I ndeed we have claimed an association relationship rather than causality. his/her peers rather than the other way around. T he U S executive data, which are longitudinal in nature, may partially relieve this concern. S another potential concern with the C hinese executive data, though it may not be too seri (Doty and Glick 1998). S econd, executive hubris was measured not only by a subjectively China Statistics Yearbook p  demonstrating to some extent that the information on RO S was reasonably reliable. Finally, informant method, as the respondents were less likely to have consciously fabricated 1998). 102 example, the praising of an executive by the media has been suggested in previous work as a potentially important factor leading to ). With the available data, the current study was not in a position to investigate every such possibility. Future research tive’s uncertainties ( A shkanasy et al. 2000; H et al. ; Dhanaraj and Beamish S imilarly, the current research only considers one particular cultural dimension: individualism–collectivism. Future research should also explore the potential role of other cultural dimensions, such as power distance, H ofstede 1980 in the Western context, such as the concept of executive will require more cross-cultural studies with the upper echelons theory in mind. E ast E uropean countries as a comparative context. e are grateful to Guest E ditor Dirk H ers for their insightful feedback during the review process. T he research is supported in part by the Research Grants C ouncil of H ong Kong (General Research Funds projects: PolyU#5492/10 H and -ects: A -PK02 and 4-ZZ8G).1 e note that in T able 3 hubris ( p  hubris level. T his does not contradict the moderating effect of state ownership, which implies fect of ownership on executive hubris, in a supplementary analysis, p  0.05). T his may suggest that in C hinese private businesses, hubris can emerge due to family elements (Forbes We thank one anonymous reviewer for this valuable suggestion. We thank one anonymous reviewer for pointing out this important issue. 103 References A iken, L ., & West, S Multiple regression: Testing and interpreting interactions. Park: S age. r, T. -than-average effect. Journal of Personality and Social Psychology, -tion of permanent employment in Japan. Administrative Science Quarterly, 46(4), 622–654. agement Review,Ashkanasy, organizational culture and T housand Oaks: S age.Bandura, A . (1977). 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