Managerial Macro-cognition: Mechanisms And Economic Effect

In the past 40 years of reform and opening up,China's economic development has made tremendous achievements and created intensely growth.The rapid development of China's economy is attributed to the coexistence of a planned economy to a market mechanism and from a single public ownership system to multiple ownership systems.However,China's economic development also has obvious government characteristics.The government has made significant contributions to improve the market environment,maintaining macroeconomic stability,and promoting institutional development.In particular,in recent years,China's economic has been out of balance.The government has frequently adopted macro policies to stabilize economic development and ensure economic growth.Therefore,firm is facing complicated macro-economic environment,so how to analyze the macroeconomic situation,interpret macro policies,and grasp the opportunities in the macro-economy is a key factor in firm's behavior decisions.Many important literatures have emerged in “Macroeconomic Policy and Micro-firm Behavior”.For instance,using macroeconomic variables explain firm behavior or using aggregate accounting information to predict macro economics.However,these literatures may have two shortcomings: First,there is a long route from the macroeconomic policy transmission at the national level to influence firm decisions;Second,most macro variables are time series and all firm face the same macro variable,so the cross-sectional test of firm to deal with different macroeconomic environments is very important.Therefore,based on cognitive psychology and macro-environment,combined the text analysis method of Natural Language Processing(NLP)technology to extract the text of the “Management Discussion and Analysis”(MD&A),we build “Managerial Macro-Cognition”(MMC)indicator at the firm level.These conclusions included:First,we make a theoretical analysis of the impact of manager macro-cognition on corporate behavior.Drawing on the relevant research of management science,we define the macro-cognition of managers as “a collection of knowledge structures related to managers and the macro-environment,which is embodied in the process of managers' attention and interpretation of macro-environmental information,and guide business decisions”.Combining with the existing “macro to micro” analysis framework,we regard the macro-cognition of managers as an important mechanism for transmitting macroeconomic policies to firm behaviors,internalizing macroeconomic policies at the firm level.The three factors of macro-cognition transmission to firm behavior,that managers' macro-cognition is influenced by executives' cognitive ability,cognitive willingness and cognitive allocation to the macro-environment,all of these have obviously manager style.Secondly,using Natural Language Processing(NLP)technology and Python software,we introduce the detailed construction process of executive macro-cognitive indicators,through word frequency method and weight method.Two kinds of macro-cognitive indicators of managers is built respectively.The larger of MMC value,the higher the macro-cognitive ability of the managers.Third,the formation of the macro cognition of senior executives has a significant effect on the management style,that is,the macro cognition of senior executives will change significantly belong with the management style.We find that the macro cognition of executives has obvious managerial style.After the MD&A was divided into backwark and forwark-looking,we find that the manager style effect of macro cognition of executives in the forwark-looking is more obvious.Further study find that managers of specific personal characteristics has a significant impact on management style,executive degree and financial background has a positive relationship with manager,overseas experience will significantly reduce the management style effect.The results are also significant even after changing the measurement of executive macro cognition.Fourth,the stronger the macro-cognition of managers,the higher the investment efficiency of enterprises.After a series of robust tests,the conclusions are still established.After dividing the “Management Discussion and Analysis” into backwark and forwark-looking,we find that in the forward-looking information,the role of executive macro-cognition in investment and investment opportunity sensitivity is more obvious.Furthermore,we find that firm in the economic cycle,cyclical industries and Non-SOE(non-state-owned enterprises)that are greatly affected by the economic environment are more obvious.Among companies with high investment reversibility and greater management capabilities,executive macro perception has a stronger effect on investment efficiency.Fifth,the macro cognitive ability of manager can significantly improve the accuracy of management prediction.There is no significant difference between backwark and forwark-looking.After a series of robustness tests,the results still generally consistent.Compared with the economic upside,in the economic downside,the higher the executives' macro cognitive ability,the more accuracy of the management forecast.For the firm with capital and short selling securities,the management is more likely to learn from the information contained in the stock price due to the relatively higher information content of the stock,so the macro cognition of the senior executives can significantly improve the accuracy of the management's prediction.When the monitoring of institutional investors is weak,the management has enough space to independently decide the specific form of the management prediction disclosure.Therefor,the higher manager macro cognitive ability,the more likely to issue accurate earnings forecasts.Lastly,the macro-cognition level of firm can better predict the long-term GDP growth rate.There is a significant positive correlation between the MMC and the GDP growth rate of the next three periods,indicating that the aggregated macro-cognition can effectively predict future GDP changes.After a series of robust tests,the results is consistent.It is found that the forward-looking part can significantly predict the GDP growth rate of the next three periods,indicating the forward-looking macro-level of knowledge has better predictive function.Further research shows that when the economic cycle is in the downside,the industry in which the enterprise is located is supported by industrial policies and Non-SOE,the aggregated macro-cognition has a more significant effect on GDP.In summary,under the existing research framework of “macro to micro”,incorporates the executive cognition factor that reflects the heterogeneity between firm and macroeconomic cognition.Internalizing macroeconomic variables at the firm level has important research implications,as below:First,for the first time,this paper constructs a “Managerial Macro-Cognition”(MMC)indicator at the firm level to represent manager cognitive structure and cognition of macro-information's attention,interpretation and decision-making.In the past,the literature on managers' perception of the environment mainly focused on strategic issues such as the industry or market competition environment and internationalization,and less on the managerial perception from the perspective of macro-economic environment.Therefore,studying from the managerial perception can help to identify the heterogeneity of macro-economics among executives of different firm.Second,this paper study the internalization of macroeconomic information to the firm level exploratory,overcoming the differences in previous studies that are difficult to reflect the overall impact of the firm's macroeconomics,and is conducive to deepening macro and micro related research.By constructing macro-cognition of executives at the firm level,we can observe the differences in the perception of the same macroeconomic information among different firm,and expand the research on “macro to micro”.Third,this paper enriched the text analysis and other computer technology applied in China's financial accounting research.There are few researches related to text analysis in the field of finance and accounting in China,which is in the initial stage as a whole.In addition,there is still no complete dictionary,which makes it more difficult to apply text analysis technology in the field of finance and accounting in China.We relatively complete the establishment of China's financial and accounting dictionary and macroeconomic policy dictionary,and then build the macro cognitive indicators of executives.There may be still some problem such as insufficient indicator identification,no further subdivision of macro vocabulary and inability to alleviate endogenous problem,but these problems also provide further improvement for our subsequent research.