How do CEOs process information? Does their cognitive style matter? That’s what strategy Assistant Professor Daniel Zyung and his co-authors assess in their research paper, currently under review, “CEO Cognitive Complexity and Firm Growth Strategies: Evidence from Acquisitions and Internal Innovations.”

The findings suggest that a CEO’s “style” can have important implications on growth strategies as manifested in firm acquisitions and innovation. A particular cognitive style, or cognitive complexity, means the extent to which one differentiates and integrates informational stimuli. “Conceptually, the research is a revisit of the related literature,” Zyung offers. “It suggests that cognitive complexity is more than a cognitive ‘capability’ — it’s a ‘style.’ But it is also an advance empirically,” he notes. “CEOs are hard to survey. So we borrowed some tools from psychology to understand them through more unobtrusive ways.”

The study was based on a sample of 3,144 public U.S. firms across industries. The authors obtained quarterly earnings conference call data from 2002 through 2013. Language markers, captured in the calls’ transcripts and analyzed for specific content implications, were used as indicators of CEO cognitive styles. An average of three transcripts for each CEO annually and 66,024 transcripts in total were analyzed.

CEOs face high information-processing loads. In the vernacular of psychology, cognitive complexity is likened to “the idiosyncratic manner in which individuals think and view informational stimuli — the extent to which they can differentiate and integrate them.”

High-complexity CEOs tend to be comfortable interpreting multifaceted situations, tolerant of processing and accepting multiple perspectives, and generating the links between them. They seek an understanding of the interplays between multiple factors to make a decision. Meanwhile, CEOs with low cognitive complexity tend to draw upon a small number of dimensions in processing information and understanding issues; they have more focused ranges of attention and develop fewer links among select constructs when confronted with multifold situations.

“Our findings offer a more balanced view, suggesting that cognitive complexity is a cognitive ‘style’ and various levels of cognitive complexity fit different growth strategies.”

Prior literature on managers’ cognitive complexity has equated it to a cognitive “ability” and assumed that higher cognitive complexity is better. This research indicates different styles are not better or worse, just different. “Our findings offer a more balanced view, suggesting that cognitive complexity is a cognitive ‘style’ and various levels of cognitive complexity fit different growth strategies,” the authors write.

“In our research, it’s more about the style of thinking and information processing,” says Zyung. “Being more simple or low in complexity is, indeed, not bad. It can be very helpful sometimes to think in black and white terms and be focused, which can better serve certain circumstances.”

The results indicate that CEO cognitive style plays out in different growth strategies. Firms run by CEOs with low cognitive complexity display greater focus on internal, organic growth by investing more in R&D and introducing more new products. They are more oriented toward innovation, the research finds. Innovation itself is complex — full of novel ideas, unique constructs and distinctive connections. Meanwhile, those leaders with higher cognitive complexity are more aligned with external acquisitive growth, requiring a wider search scope and complex information processing.

“Between acquisitions and organic growth, one approach is not necessarily better than the other,” he emphasizes. “We wanted to determine whether there is a fit between the two different growth modes and style. And interestingly, there is a good match between them.”

Further, the differing strategic patterns among high- and low-cognitive complexity CEOs are more salient when the industry is growing more rapidly. CEOs’ preferences reveal more distinctive paths when abundant growth opportunities are prevalent. This research sheds light on how the cognitive style of the CEO relates to strategic directions.