Eagerness vs. vigilance : the effects of CEO regulatory focus on firm innovation behavior, error avoidance behavior and firm reputation

Abstract

I develop and empirically test a model of the effects of CEO regulatory focus on firm actions and firm reputation. I use regulatory focus theory to unpack the differences in firms’ strategic actions, specifically innovation behavior, operationalized by new product introductions, and mistake avoidance behaviors, operationalized by product recalls, and the effect of CEO regulatory focus on firm reputation. Regulatory focus theory has identified two motivators of behavior: promotion focus and prevention focus. I characterize CEO promotion focus as strategic eagerness, when CEOs influence their firms to execute actions in pursuit of accomplishments or successful "hits", and CEO prevention focus as strategic vigilance, when CEOs influence their firms to execute actions in order to avoid mistakes and to maintain a sense of safety. These different behavior profiles are theorized to result in different levels of product innovation and product recalls for firms within the U.S. automobile industry. CEO regulatory focus is also theorized to have direct or indirect effects on multiple aspects of firm reputation - specifically, firm prominence and reputation for quality. I test these hypotheses through text analysis of firm letters to shareholders and further empirical study of the global automotive industry in the U.S. from 1996-2010. The impact of regulatory focus on product introductions and product recalls and the direct and mediated effects of strategic eagerness and strategic vigilance generated mixed, but encouraging, results. This study extends the influence of CEO regulatory focus on strategic actions and expands the micro-foundational influences on firm action logics.