Linking top managers’ behavioural traits with business practices and firm performance

Abstract

We embed an experiment in an ongoing firm-level panel survey with a sample of 623 firms managed by their owners to explore the role of top managers’ behavioral traits as drivers of corporate strategies and performance. We find that present biased managers are less likely to invest in business practices, leading to lower sales revenue. Younger managers are more patient and less risk-averse than older ones, and they play a more significant role in improving firm performance than their counterparts. Interestingly, we find compelling evidence that business practices play a crucial role as a mediating mechanism through which managers’ present bias and loss aversion affect firm performance.