Purpose This research aims to explore the relationship between CEO functional diversity and firms' cost leadership strategies, addressing the gap in literature concerning how CEOs' functional experience influence business-level strategy. Specifically, it examines the moderating roles of environmental uncertainty and organizational slack in shaping this relationship. By investigating these dynamics, the study provides insights into the mechanisms through which CEO traits impact firms' strategic choices, offering a fresh perspective on the influence of executive human capital in organizational decision-making. Design/methodology/approach The study employs empirical analyses using 14,740 firm-year observations from 2,139 Chinese A-share listed firms over the period 2009–2022. It applies various econometric models, including OLS, PSM, 2SLS-IV and DID, to ensure robustness. Role theory underpins the conceptual framework, positing that CEOs' functional diversity influences strategic decision-making by shaping their perceptions and preferences. The study also examines moderating factors such as environmental uncertainty and organizational slack to evaluate their effects on the relationship between CEO functional diversity and cost leadership strategy. Findings The findings indicate that CEO functional diversity negatively impacts firms' adoption of cost leadership strategies. Environmental uncertainty, as an external contingency, weakens this negative relationship, while organizational slack, as an internal contingency, strengthens it. These results highlight the nuanced effects of CEO functional diversity on business-level strategies under varying contextual conditions. The study suggests that firms operating in uncertain environments or with ample resources need to carefully consider the functional diversity of their CEOs to achieve strategic alignment. In addition, the heterogeneity analysis reveals that the negative relationship between CEO functional diversity and cost leadership strategy is more pronounced in non-state-owned enterprises and high-tech industries. Research limitations/implications This study acknowledges several limitations. First, while the measure of CEO functional diversity has been validated in prior research, further refinement and validation of this construct are needed. Second, the study focuses on environmental uncertainty and organizational slack as moderating factors but recognizes the potential influence of additional boundary conditions. Third, the research sample is limited to Chinese listed firms, which may restrict the generalizability of the findings to other countries. Future studies should explore cross-regional and cross-industry contexts to validate these findings. Despite these limitations, the study provides a robust theoretical and empirical framework integrating upper echelons and role theory. Practical implications This study offers practical insights for firms. First, it highlights the importance of aligning CEOs' functional experiences with strategic objectives, aiding firms in selecting leaders whose backgrounds best support strategy execution. Second, firms can guide incumbent CEOs in leveraging their diverse functional experiences while mitigating cognitive biases to ensure alignment with long-term goals. Third, understanding how contextual factors like environmental uncertainty and organizational slack influence CEOs' strategic choices enables firms to adapt strategies in dynamic environments. These insights can help firms enhance strategic adaptability and competitiveness, particularly in complex and rapidly changing markets. Originality/value This research contributes to the literature on CEO human capital and upper echelons theory by focusing on the influence of CEOs' functional diversity on cost leadership strategies, an underexplored area. It introduces role theory to explain the behavioral mechanisms behind CEOs' strategic decisions and integrates environmental uncertainty and organizational slack as boundary conditions. By highlighting how CEO traits interact with contextual factors, the study provides actionable insights for firms in emerging markets and extends theoretical frameworks, bridging gaps between executive characteristics and business-level strategic choices.
Liu et al. (Tue,) studied this question.