Managerial Hubris, Trade Associations and Regulatory Knowledge in Micro‐Firms
| Author | Marc E. Betton,J. Robert Branston,Philip R. Tomlinson |
| Published date | 01 October 2019 |
| Date | 01 October 2019 |
| DOI | http://doi.org/10.1111/1467-8551.12314 |
British Journal of Management, Vol. 30, 888–907 (2019)
DOI: 10.1111/1467-8551.12314
Managerial Hubris, Trade Associations
and Regulatory Knowledge in Micro-Firms
Marc E. Betton , J. Robert Branston and Philip R. Tomlinson
Centre for Governance, Regulation, and Industrial Strategy (CGR&IS), School of Management,University of
Bath, Bath, BA2 7AY, UK
Corresponding author email: J.R.Branston@bath.ac.uk
To avoid breaking the law for regulatory non-compliance, it is essential that micro-firm
owner-managers are aware of deficiencies in their knowledge, so that they can seek im-
provement and avoid over-confidence (i.e. hubris) in their knowledge levels. Using newly
collected survey data from micro-firms in the English accommodation sector and mul-
tivariate techniques, the authors explore the possibility of hubris by making a novel
distinction between the Perceived-Knowledge and Actual-Knowledge of regulation held
by micro-firm owner-managers. Both Perceived-Knowledge (from self-assessment) and
Actual-Knowledge (from a simple test) over fourcore areas of regulation are found to be
dierent, generally poor and suggestive of hubris. The relationshipbetween these knowl-
edge levels is further explored by considering the role of trade association membership
(since they support members) and attitude (since it eects learning). Attitude is found
to be positively associated with both forms of knowledge, while trade association mem-
berships are also found to be associated with enhanced Perceived-Knowledge, but not
Actual-Knowledge. In light of the results, the authors suggest several priority areas for
improving Actual-Knowledge and self-assessment skills, and areas for futureresearch.
Introduction
Managers of all businesses must make decisions
based on their knowledge and understanding of
an ever-evolving set of regulations.1However, in
The authors would like to thank Chris Dawsonfor com-
ments and suggestions on an earlier version of this paper,
along with Chris Hallsworth for assistance on the statis-
tical approach adopted. They would also liketo thank all
those involved in the running of survey, most especially:
all respondents; David Weston at BBA; Andy Woodward
at FSUK; Martin Couchman and Julia Svetlosakova at
BHA; and Sharron Orrell and Jane Darragh at VE. The
responsibility forthe work, however,remains entirely with
the authors.
*A free Teaching and Learning Guide to accompany
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1Regulation is the ‘imposition of rules by government,
backed by the use of penalties that are intended specifi-
cally to modify the economic behaviourof individuals and
firms in the private sector’ (OECD 1993, p. 73).
small firms and particularly micro-firms, the wide
range of responsibilities and potential lack of skills
or specialist knowledge may impact managers’
knowledge and understanding of the applicability
of particular regulations, and/or the detail of how
they should be implemented (O’Dwyer and Ryan,
2000). For a business to succeed, it needs to com-
ply with all applicableregulations, while expending
the least amount of resources in doing so. A poor
level of understanding of regulations can result
in misguided attempts at regulatory compliance,
which risks incurring unnecessary costs and/or
prosecution forbreaking the law.For smaller firms,
the resulting fines, reputational damage and/or
loss of business due to temporary closure can
quickly exceed their limited resources (Boustras
et al., 2015; Shalini, 2009). It is therefore impor-
tant to understand what managers know and how
much they think they know about the regulations
applying to their business, and the sources of this
Perceived-Knowledge and Actual-Knowledge.
A potential danger is that managers are liableto
exhibit hubris (i.e. inappropriate overconfidence),
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2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
Regulatory Knowledge in Micro-Firms 889
meaning that they mistakenly believe their
knowledge to be more accurate and complete
than it truly is, thereby leading to ill-informed
decision-making and unintentional non-
compliance. There is a rich literature exploring
managerial hubris in a variety of contexts, in-
cluding entrepreneurship, unethical governance
and the decisions taken by corporate execu-
tives (Cassar, 2010; Haynes, Hitt and Campbell,
2015; Hayward and Hambrick, 1997; Hayward,
Shepherd and Grin, 2006; Hiller and Ham-
brick, 2005; Judge, Piccolo and Kosalka, 2009;
McManus, 2018).2This literature suggests that
hubris is a real concern for businesses, and
it is likely to be especially serious for micro-
firms who lack the resources to withstand poor
decision-making for a prolonged period. Typ-
ically, studies on regulation, particularly those
involving micro-firms, assess the ‘burden’ of
regulation, but crucially fail to explore the level of
knowledge and understanding that sits behind the
assumed burden (Kitching, 2006; Kitching, Hart
and Wilson, 2015). Furthermore, micro-firms
are frequently overlooked in favour of larger
‘small firms’, while firms with no employees
are often excluded, both in general terms, and
in academic studies of regulation in particular
(Arrowsmith et al., 2003; Greenbank, 2000; Russo
and Tencati, 2009). Yet knowledgeof, and compli-
ance with, regulation is especially significant for
micro-firms, as managers often find themselves
spread thinly, focusing on the day-to-day opera-
tions of their businesses (and hence ‘firefighting’)
rather than finding time for business development
(Falta and Gallery, 2011). They are also likely to
suer from a lack of managerial skill and experi-
ence, and wider business support (Carson, 1985;
Johnson, 2002; O’Dwyer and Ryan, 2000) making
them particularly vulnerable to hubris. For in-
stance, Blackburn, Kitching and Saridakis (2015)
find that micro-firm managers often ‘sort out
problems on their own’, and only 20% seek legal
professionals when dealing with legal issues, de-
spite lacking the expertise themselves. This makes
micro-firms an ideal setting in which to explore
regulatory knowledge, especially since they are
also the most numerous type of businesses in the
UK economy,accounting for 96% of all businesses,
2See Table 1 in Bodolica and Spraggon (2011) for
an overview of hubris and its manifestations in man-
agers/firms.
32% of private-sector employment, and 19% of
private-sector turnover (Department for Business,
Energy & Industrial Strategy (BEIS), 2016a).
The contributions of this paper are threefold.
First, a novel distinction is made between the
Perceived-Knowledge and Actual-Knowledge of
regulation held by micro-firm owner-managers.
This explores the idea that owner-managers might
not know as much as they think they know, and
hence allows for an investigation of hubristic
behaviour. The second contribution expands on
this by exploring the relationship between trade
association membership and levels of Perceived-
Knowledge and Actual-Knowledge, since these
organizations provide their member firms with
support in this area. The final contribution takes
this further by examining the association between
attitudes towards regulation and the levels of
Perceived-Knowledge and Actual-Knowledge,
since attitude impacts an individual’s approach to
learning.
The paper explores the theoretical positions
developed using original survey data from the
English tourism industry and multivariate tech-
niques. Four core areas of regulation are explored,
as they are areas where the relevant trade asso-
ciations are active and are widely applicable to
most businesses, thereby broadening the poten-
tial impact of the results beyond the immediate
case. The tourism industry is a fitting case for
such a study, as it is made up predominantly of
micro-firms (TourismAlliance, 2016) and is highly
regulated, with over 21,000 regulations estimated
to be in eect (Tourism Regulation Taskforce,
2012). It is a significant sector in the UK econ-
omy, accounting for 9.5% of UK employment
and contributing 7.1% of UK GDP (in 2014)
(Tourism Alliance, 2016). Furthermore, Shaw and
Williams (2009) argue that there is little research
into knowledge in a tourism context, and there
are a substantial number of trade associations
in the industry (with high levels of member-
ship), making it an ideal context in which to
explore the issue of regulatory knowledge within
micro-firms.
The remainder of this paper is set out as follows.
The second section reviews the relevant literature,
therein developing a number of hypotheses to
be tested. The third section presents background
on the chosen case, details of the survey that acted
as the data source, and the methodological ap-
proach. The fourth and fifth sections then present,
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