EXECUTIVE COGNITION AND STRATEGIC DIVERSITY AS DRIVERS OF FIRM PERFORMANCE: EVIDENCE FROM NAIROBI SECURITIES EXCHANGE–LISTED FIRMS
Abstract
This study examines how executive cognition and strategic diversity influence firm performance among firms listed on the Nairobi Securities Exchange (NSE). Drawing on Upper Echelons Theory and the dynamic capabilities perspective, the study addresses persistent inconsistencies in strategic leadership research by integrating cognitive and diversity-based explanations of organizational performance. While previous studies have largely relied on demographic proxies such as age, tenure, and educational background to explain executive influence, recent scholarship emphasizes that managerial cognition and strategic interpretation are central mechanisms through which executives shape firm outcomes. The study conceptualizes executive cognition as the strategic and interpretive capability through which executives process environmental complexity, evaluate uncertainty, and formulate adaptive decisions. Strategic diversity refers to heterogeneity in functional expertise, educational background, experience, and strategic orientation within top management teams. Using an emerging-market context characterized by institutional volatility and elevated managerial discretion, the study proposes that firm performance is jointly influenced by cognitive capability and the integration of diversity within executive leadership structures. Methodologically, the study adopts a quantitative explanatory research design using panel data from NSE-listed firms. Secondary data were collected from annual reports, audited financial statements, and Capital Markets Authority publications. Firm performance was measured using Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q. Fixed-effects panel regression analysis was employed to test the direct and interaction effects between executive cognition, strategic diversity, and firm performance. The findings reveal that executive cognition has a positive and statistically significant effect on firm performance. Strategic diversity also positively influences organizational outcomes; however, its effect becomes substantially stronger when supported by high executive cognitive capability. The interaction between executive cognition and strategic diversity demonstrates the strongest positive relationship with firm performance, suggesting that cognitively capable leadership enables firms to effectively integrate diverse perspectives into coherent strategic action. The study contributes to strategic management scholarship by advancing a behaviourally grounded extension of Upper Echelons Theory that integrates executive cognition and strategic diversity within a unified framework. It further extends strategic leadership research into African capital markets and highlights the importance of cognitively integrated leadership systems in enhancing organizational resilience, innovation, and sustainable competitive advantage in emerging-market environments.
Keywords: Executive cognition, strategic diversity, firm performance, Upper Echelons Theory, behavioural strategy, emerging markets, Nairobi Securities Exchange
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