Linking managers’ emotional intelligence, cognitive ability and firm performance: Insights

from Vietnamese firms

1. Research’s problem

The traditional economic and financial theories have provided insights into corporate finance and
performance. But, previous studies do not thoroughly scrutinize the role of human resources in
the firm performance relationship and traditional theories do not consider some aspects of a
manager’s personality traits and competencies as the main driver of firm performance. However,
the research noted that cognitive ability (IQ) and emotional intelligence (EQ) are vital factors in
explaining and understanding an individual’s job performance and managerial practices.

EQ is refer as the ability of an individual to understand and manage his/her own emotions and
others’ feelings, and then utilize this information to reason and solve problems, and guide
actions. By this definition, we expect that mangers with higher EQ would make better
managerial decisions, leading to improved organizational performance. And IQ also examined
that play an important role in individual’s achievement

An under-researched question in the current literature is how a manager’s IQ and EQ play a role
at the organizational level?. To explore this question, we focused on a sample of 623 textile and
garment firms in Vietnam in the year of 2018.

The research aim to make following contributions: First, the study examines the role of
nontraditional factors such as managers’ EQ and IQ in driving firm performance. Second, the
research is one of the pioneering studies scrutinizing these factors in the context of an emerging
economy like Vietnam. Doing so responds to important call for a better understanding of
determinants of firm growth in developing countries. Third, focusing on individual’s traits
including EQ and IQ, the study provide practical implications for firms in terms of
organizational development strategies, human resources management and policies, and for
managers whose aim to enhance firm performance.

2. Theoretical framework and hypothesis development

As this study is concerned with considering EQ as a function of individuals’ potency in

Emotional intelligence plays a central role in the effective performance of managers in the
workplace because not only managers’ knowledge and skills but their emotions and personality
traits also affect performance. Many recent studies support the positive relationship between
managers’ EQ and performance of firms, such as strategic, leadership and team management,
financial structure, and planning and decision-making skills, which in turn will improve firm
performance. Furthermore, due to the aptitude to recognize pros and cons of emotions and the
capability of influencing others’ emotions ,an emotionally intelligent manager may have
advantage in motivating performance of his employees, and building up the manager–employees
exchange relationship. An emotionally intelligent manager also has ability to improve the
relationship with his partners such as creditors, customers …

Based on mixed model conceptualizations of EQ and taking the above evidence and arguments
together, the study hypothesize as follows:

Hypothesis 1a: The managers’ emotional intelligence positively affects performance of firms

Emotional intelligence refers to “the extent to which a person is attuned to his or her own
feelings and to the feelings of others and is able to integrate emotions and reason such that
emotions are used to facilitate cognitive processes, and emotions are cognitively managed.

Based on the above logic, the study hypothesize as follows:

Hypothesis 1b: The managers’ positive affectivity positively affects performance of firms

Using historical data regarding education and cognitive ability of Fortune 500 CEOs to examine
the path to become CEO and their performance, and find out that 41% of those CEOs attended at
elite schools and were placed in the top 1% of cognitive ability. As for financial investment,
investors with high cognitive ability invest more in stock markets, and effect of IQ on
participation is much greater than income’s effect.

Along this line, we can draw hypothesis as below:

Hypothesis 2: Cognitive ability of managers is positively related to firm performance

3. Methodology

The study was conducted for a sample of 623 managers of textile and garment firms in three
largest manufacturing hubs of Vietnam, namely Thai Binh, Hai Duong and Binh Duong
provinces in 2018. Sample firms are randomly selected from the archives of the General
Statistics Office of Vietnam (GSO).

To ensure the creditability of the data, many officials from the General Statistics Office of
Vietnam were hired to do our experimental survey.

GSO Officials deliver directly to managers.

The experimental survey consisted of two parts, in which part 1 was questions on managers’
demographic profiles and part 2 was questionnaire on emotional intelligence and cognitive
ability.
There were 10 questions from the I-PANAS-SF in section A of part 2 to measure emotional
intelligence. In the section B of part 2, cognitive ability was measured by three questions from
the Cognitive Reflection test (CRT).

The participation of managers in this study was totally voluntary, and there was no monetary
incentive to complete our experimental survey. It is worth noting that the overall response rate is
100%, so there is no self-selection bias involved in this data set.

Participants were managers, mostly CEO and CFO. The age of sample group ranged from 26 to
76. The average age of participants was 49.5 years old. In the sample, there were 34.75% female
managers and 65.25% male managers. Participants had various academic degrees, in which
about 57% of sample managers held bachelor degrees, managers had master degrees account for
4.28%, while only 0.52% of participants had doctoral degrees.

To test the above hypotheses, the study carried out cross-sectional regressions of firm
performance by estimating managers’ emotionality and cognitive ability for firm i in the year
2018, which is shown in the study baseline model in Equation as below:
4. Finding

Both emotional intelligence and cognitive ability of managers uniquely influence firm
performance:
 Managers with higher IQ level are more likely to improve firm performance, while
one unit increase in EQ level of a manager leads to 18.3 percentage point increase in
performance of firm.
 Manager with high IQ level is more likely to increase firm performance, regardless of
manager’s gender, but one unit increase in emotional intelligence of a male manager
has higher effect on firm performance than a female manager
 Younger manager with higher EQ or IQ level is more likely to enhance firm
performance.
 Emotionally intelligent manager with a higher educational level has a stronger
impact on firm performance.
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5. Conclusion

First, as hypothesized, both emotional intelligence and cognitive ability of managers uniquely
influence firm performance. The study find that a manager with higher IQ level is more likely to
improve firm performance, while one unit increase in EQ level of a manager leads to 18.3
percentage point increase in performance of firm. Firm performance is partly attributed by a
manager’s mood as we observe that a manager with good mood is more prone to improve firm
performance. These results suggest that a manager with high IQ level and/or EQ level is likely to
resolve problems more effectively and make more appropriate decisions and actions, which
enables him/her to improve firm performance. A manager also overcomes obstacles and handle
problems easily when he is in a good mood

Second, when the study scrutinize the interactive effects of managers’ IQ and EQ levels with
demographic profiles, this study documents that a manager with high IQ level is more likely to
increase firm performance, regardless of manager’s gender, but one unit increase in emotional
intelligence of a male manager has higher effect on firm performance than a female manager.
The study also find that a younger manager with higher EQ or IQ level is more likely to enhance
firm performance. Investigating the influence of educational levels, the evidence indicates that an
emotionally intelligent manager with a higher educational level has a stronger impact on firm
performance.

6. Limitations

- Male managers account for higher proportion than female one in the research
- Results are limited to some specific scales of EQ and IQ.
- Factors such as subgroup differences due to race or ethnicity are not accounted for in the
research.
- The research does not provide any theoretical contribution.
7. Contributions and suggestions
a. Contributions:
This research has some important practical implications for firms regarding recruitment and HR
management, as well as managers whose objectives are to improve firm performance.
+ To create added firm value and performance, it may be beneficial for organizations to recruit,
facilitate and promote emotionally intelligent managers who have good cognitive ability and
managerial skills.
+ It would be relevant to capitalize on the organizational existing resources in such a way that
emotional intelligence and cognitive ability become a central point in organizational
development strategies, and become main factors of managers’ job performance.
b. Suggestions:
+ Future research with more balanced male-female participation and looking at other measures
will be necessary to further investigate the effect of gender differences in managers’ EQ and IQ
on firm performance.
+ Future research is needed on aspects such as subgroup differences due to race or ethnicity or
the use of an alternative to cognitive ability testing such as working memory assessments.