Transactions on Data Analysis in Social Science

Transactions on Data Analysis in Social Science

The Impact of CEO Narcissism on Firm Risk

Document Type : Original Article

Authors
F. Saber-Mojtahedi 1
M.R. Abbaszadeh 2
B. Kardan 3
1 M.A. in Accounting, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Mashhad, Iran
2 Associate Professor, Department of Accounting, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Mashhad, Iran
3 Assistant Professor, Department of Accounting, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Mashhad, Iran
10.47176/TDASS.2022.199
Abstract
Purpose: Traditional financial theories are largely grounded in the assumption that investors and managers behave in a fully rational manner. In contrast, behavioral finance rejects this assumption and emphasizes evidence-based behavior shaped by psychological elements. These emerging perspectives highlight the role of cognitive biases and individual characteristics in shaping financial decisions. Among these traits, managerial narcissism can significantly influence decision-making. Narcissistic CEOs often demonstrate a tendency toward risk-taking, focusing on short-term goals without sufficient regard for long-term consequences, which in turn exposes organizations to greater risks. Accordingly, this study aims to investigate the impact of CEO narcissism on firm risk among companies listed on the Tehran Stock Exchange. Method: The study sample comprises 79 firms listed on the Tehran Stock Exchange over the period 2016–2021. A multivariate regression model with panel data and ordinary least squares (OLS) estimation was employed to test the research hypotheses. CEO narcissism was measured using two proxies: (1) the ratio of cash compensation to total remuneration, and (2) the size of the CEO’s signature. Findings: The results indicate that, regardless of the measurement criterion, CEO narcissism has a positive and significant effect on firm risk. Conclusion: Narcissistic CEOs, driven by excessive risk-taking tendencies and insistence on their decisions, often engage in actions that create considerable challenges within organizations and threaten their long-term success and survival. Overall, the findings suggest that CEO narcissism increases firms’ overall risk exposure.
Keywords
Narcissism
Firm Risk
Behavioral Finance
CEO
  • Heuel, L., Lübstorf, S., Otto, A.-K., & Wollesen, B. (2022). Chronic stress, behavioral tendencies, and determinants of health behaviors in nurses: A mixed-methods approach. BMC Public Health, 22. https://doi.org/10.1186/s12889-022-12993-5
  • Baker, M., & Wurgler, J. (2013). Behavioral corporate finance: An updated survey. In G. M. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the Economics of Finance (pp. 351–417). Elsevier. https://doi.org/10.1016/B978-0-44-453594-8.00005-7
  • Hirshleifer, D. (2015). Behavioral finance. Annual Review of Financial Economics, 7(1), 133–159. https://doi.org/10.1146/annurev-financial-092214-043752
  • Raza, A., Salehi, H., Rahman, M., Zahid, Z., Haghjou, M. M., Najafi-Kakavand, S., … Zhuang, W. (2022). Plant hormones and neurotransmitter interactions mediate antioxidant defenses under induced oxidative stress in plants. Frontiers in Plant Science, 13. https://doi.org/10.3389/fpls.2022.961872
  • Lari Dasht Biab, M., & Oradi, J. (2017). Examining the relationship between CEO tenure and financial knowledge with audit fees. Accounting and Auditing Review, 24(1), 81–102.
  • Haider, J., & Fang, H.-X. (2018). CEO power, corporate risk taking and role of large shareholders. Journal of Financial Economic Policy, 10(1), 55–72. https://doi.org/10.1108/JFEP-04-2017-0033
  • Gholipour, A., Khanifar, H., & Fakhri Kouzeh Kenan, S. (2008). Effects of CEO narcissism on organizational turmoil. Organizational Culture Management, 6(18), 79–94.
  • Aabo, T., & Eriksen, N. B. (2018). Corporate risk and the humpback of CEO narcissism. Review of Behavioral Finance, 10(3), 252–273. https://doi.org/10.1108/RBF-07-2017-0070
  • Malmendier, U., & Tate, G. (2015). Behavioral CEOs: The role of managerial overconfidence. Journal of Economic Perspectives, 29(4), 37–60. https://doi.org/10.1257/jep.29.4.37
  • Foster, J. D., Reidy, D. E., Misra, T. A., & Goff, J. S. (2011). Narcissism and stock market investing: Correlates and consequences of cocksure investing. Personality and Individual Differences, 50(6), 816–821. https://doi.org/10.1016/j.paid.2011.01.002
  • Ingersoll, A. R., Glass, C., Cook, A., & Olsen, K. J. (2019). Power, status, and expectations: How narcissism manifests among women CEOs. Journal of Business Ethics, 158(4), 893–907. https://doi.org/10.1007/s10551-017-3730-0
  • Imer, F., & Kargoz, M. (2018). Examining the relationship between the dark triad and opportunistic decision-making of financial managers in accounting. Advances in Accounting, 10(1), 265–293.
  • D'Souza, M. F., & Lima, G. A. (2015). The dark side of power: The dark triad in opportunistic decision-making. Advances in Scientific and Applied Accounting, 8(2), 135–156. https://doi.org/10.14392/asaa.2015080201
  • Khajavi, S., Dehghani Saadi, A., & Gerami Shirazi, F. (2016). The impact of CEO narcissism on earnings management and financial performance. Advances in Accounting, 8(2), 123–149.
  • Namazi, M., Dehghani Saadi, A., & Ghahestani, S. (2017). CEO narcissism and corporate business strategy. Accounting and Management Auditing Knowledge, 6(22), 37–52.
  • Baker, M., Pan, X., & Wurgler, J. (2009). The psychology of pricing in mergers and acquisitions. Unpublished working paper, Harvard Business School.
  • Yim, S. (2013). The acquisitiveness of youth: CEO age and acquisition behavior. Journal of Financial Economics, 108(1), 250–273. https://doi.org/10.1016/j.jfineco.2012.11.003
  • Barnard, J. W. (2008). Narcissism, over-optimism, fear, anger, and depression: The interior life of corporate leaders. University of Cincinnati Law Review, 77, 405–430.
  • Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 306–318. https://doi.org/10.1257/aer.89.1.306
  • Aktas, N., De Bodt, E., Bollaert, H., & Roll, R. (2016). CEO narcissism and the takeover process: From private initiation to deal completion. Journal of Financial and Quantitative Analysis, 51(1), 113–137. https://doi.org/10.1017/S0022109016000065
  • Campbell, W. K., Goodie, A. S., & Foster, J. D. (2004). Narcissism, confidence, and risk attitude. Journal of Behavioral Decision Making, 17(4), 297–311. https://doi.org/10.1002/bdm.475
  • Shafiei, H., & Safari Nia, M. (2011). Narcissism, self-esteem, and aggression dimensions in adolescents. Counseling and Psychotherapy Culture, 2(6), 122–147.
  • Bogart, L. M., Benotsch, E. G., & Pavlovic, J. D. P. (2004). Feeling superior but threatened: The relation of narcissism to social comparison. Basic and Applied Social Psychology, 26(1), 35–44. https://doi.org/10.1207/s15324834basp2601_4
  • Wallace, H. M., & Baumeister, R. F. (2002). The performance of narcissists rises and falls with perceived opportunity for glory. Journal of Personality and Social Psychology, 82(5), 819–834. https://doi.org/10.1037/0022-3514.82.5.819
  • Brummelman, E., Thomaes, S., & Sedikides, C. (2016). Separating narcissism from self-esteem. Current Directions in Psychological Science, 25(1), 8–13. https://doi.org/10.1177/0963721415619737
  • Adams, R. B., Almeida, H., & Ferreira, D. (2005). Powerful CEOs and their impact on corporate performance. Review of Financial Studies, 18(4), 1403–1432. https://doi.org/10.1093/rfs/hhi030
  • Chintrakarn, P., Jiraporn, P., & Tong, S. (2015). How do powerful CEOs view corporate risk-taking? Evidence from the CEO pay slice (CPS). Applied Economics Letters, 22(2), 104–109. https://doi.org/10.1080/13504851.2014.927565
  • Ham, C., Seybert, N., & Wang, S. (2017). Narcissism is a bad sign: CEO signature size, investment, and performance. Review of Accounting Studies, 23, 234–264. https://doi.org/10.1007/s11142-017-9427-x
  • Safri Greyli, M., Rezaei Pinte Noui, Y., & Norouzi, M. (2017). CEO testosterone level and firm risk-taking. Investment Knowledge Quarterly, 6(24), 83–97.
  • Kontesa, M., Brahmana, R., & Tong, A. H. H. (2021). Narcissistic CEOs and their earnings management. Journal of Management & Governance, 25, 223–249. https://doi.org/10.1007/s10997-020-09506-0
  • Buyl, T., Boone, C., & Wade, J. B. (2019). CEO narcissism, risk-taking, and resilience: An empirical analysis in U.S. commercial banks. Journal of Management, 45(4), 1372–1400. https://doi.org/10.1177/0149206317699521
  • Moshayekh, S., Habibzadeh, M., & Hassanzadeh Kochoo, M. (2020). The impact of CEO narcissism on voluntary disclosure of company information. Accounting and Auditing Reviews, 27(4), 649–671.
  • Judd, J. S., Olsen, K. J., & Stekelberg, J. M. (2015). CEO narcissism, accounting quality, and external audit fees. Working Paper. http://ssrn.com/abstract=2605172
  • Gordon, M., & Shapiro, E. (1956). Capital investment analysis: The required rate of profit. Management Science, 3(1), 102–110. https://doi.org/10.1287/mnsc.3.1.102
  • Bazrafshan, V., Bazrafshan, A., & Salehi, M. (2018). The impact of CEO narcissism on financial reporting quality. Accounting and Auditing Review, 25(4), 457–478.
Transactions on Data Analysis in Social Science
Volume 4, Issue 4
Autumn 2022
Pages 199-209

  • Receive Date 08 September 2022
  • Revise Date 25 November 2022
  • Accept Date 23 December 2022