Is Managerial Discretion High in Small Firms? A Theoretical Framework

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Peer-Reviewed Article

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A significant body of research assumes that managerial discretion is high in small firms. However, this assertion is based on simplified explanations linking specific firm characteristics, particularly resource, structural, and ownership characteristics, with a unilateral and objective view of managerial discretion. Adopting a perceptual and multidimensional conceptualization of discretion, and employing an information processing perspective, we challenge this assumption and build a theoretical framework that explains how these key firm characteristics shape executives’ perceptions of strategic choice availability (latitude of actions) and strategy implementation ability (latitude of objectives). We contribute to the theoretical development of the managerial discretion construct by providing a more nuanced perspective on the relationship between firm size and managerial discretion. We also point to the importance of incorporating perceptions of managerial discretion in research exploring opportunity recognition, entrepreneurial orientation, and strategy formation and implementation in small firms and family businesses.