Indirect industry and subindustry-level managerial discretion measurement

Abstract

Hambrick and Finkelstein's managerial discretion model has received limited research attention, partly because managerial discretion is difficult to operationalize. Abrahamson and Hambrick measured attentional homogeneity, 'the degree of similarity of foci of attention of managers in an industry', and demonstrated that it is strongly and negatively correlated with industry-level discretion (ILD). The authors measure attentional homogeneity more accurately and elegantly and show that attentional heterogeneity, the negative of attentional homogeneity, is a viable operationalization of ILD. They extend the technique and measure average levels of managerial discretion for subindustry groups and, using debt discipline as their example, demonstrate the contextual effects of ILD and show that discretion determinants can have nonlinear interactions.