Managerial Style and Attention∗

Is firm behavior mainly driven by its environment or rather by the characteristics of its managers? We develop a cognitive theory of manager fixed effects, where the allocation of managerial attention determines firm behavior. We show that in complex environments, the endogenous allocation of attention exacerbates manager fixed effects. Small differences in managerial expertise then may result in dramatically different firm behavior, as managers devote scarce attention in a way which amplifies initial differences. In contrast, in less complex environments, the endogenous allocation of attention mitigates manager fixed effects. Firm owners prefer managers with task-specific expertise only in complex environments. ∗We thank our discussant, John Roberts, and seminar participants at Stony Brook University, USC, UCL Louvain, Boston University, Columbia GSB, the University of Utah, Queens University, the Rational Inattention Workshop in Paris, the 2014 NBER Org Econ Conference in Stanford and the 17th NBER-CCER conference on China and the World Economy in Beijing.