How Does CEO Decision Style Influence Firm Performance? The Mediating Role of Speed and Innovativeness in New Product Development

Abstract

Although chief executive officers (CEOs) are the primary decision-makers in their firms, there has been little research on how CEOs' decision styles affect firm performance. This study explores the relationships between firm performance and two key dimensions of CEO decision style, namely the use of heuristics and decision standards. We conceptualize the speed and innovativeness of new product development (NPD) as mediators in these relationships. An empirical analysis of 1046 German firms indicates that CEOs' use of heuristics may lead to higher NPD speed and stronger firm performance. In addition, higher decision standards, i.e., a stronger tendency to make the best decisions possible, among CEOs may promote higher NPD speed, NPD innovativeness, and firm performance but may also lead to less use of heuristics. Our findings underscore the relevance of CEO decision styles for firm performance and NPD, contribute to the debate on the rationality of heuristics, and conceptually broaden the role of decision standards in decision-making.