Recently, scholars have been calling for research on how cognitive differences between Chief Executive Officers (CEOs) affect real options intensity and thus tendency to build strategic flexibility for their firms. At the same, there is limited theorizing on the stages of the real option life cycle – identifying, creating, maintaining, and exercising real options. We contribute to the cognitive perspective and argue that CEO temporal focus – a subjective perception of time – relates to those underlying stages in the real option life cycle and, consequently, affects firm real options intensity. On the one hand, we predict that a higher CEO future focus is beneficial for identifying potential options and creating real options and is therefore positively related to real options intensity. On the other hand, we expect that a higher present focus will lead CEOs to exercise existing real options available to them and therefore negatively relates to firm real options intensity. Further, building on work that considers situational factors which may influence a CEO’s ability and motivation to invest in or exercise real options, we include the opportunity environment as a moderator. Specifically, we argue that the relationships between CEO temporal focus and firm real options intensity are stronger in an environment characterized by scarce opportunities. Using a panel dataset of listed European firms, we find support for our theorizing. Our study emphasizes the substantial impact of the CEO’s temporal focus in shaping their firm’s investment decisions and strategic flexibility.
