CEO Narcissism And Corporate Behavior

Since Hambrick and Mason(1984)proposed upper echelons theory,researchers have devoted significant effort to studying whether and how executive personality traits affect firm behavior.However,most of them focus on the demographic characteristics of executives,little is on personality characteristics.With the development of behavioristic psychology,narcissism is gradually received much attention.Therefore,this study explores the impact of CEO narcissism on corporate behavior from three aspects:corporate investment behavior,financing decisions,and accounting conservatism.Existing literature shows that personal signature size can reflect narcissistic personality,thus this study uses signature size to measure narcissism degree.Using a sample of all A-share listed companies from 2007 to 2016,the impact of CEO narcissism on corporate behavior is investigated.First,Investment is one of the important corporate activities.This study examines the relationship between narcissistic CEO and overinvestment,as well as the effect of financing constraints and accounting conservatism on this relationship.Next,this study investigates whether and how narcissistic CEOs affect financing decisions.I firstly test whether narcissistic CEOs would like to debt.Then I conduct a cross-sectional analysis to examine how likely are narcissistic CEOs to issue equities varies with the control right of CEOs,namely whether the narcissistic CEO is ultimate controlling owner.Further,I consider the impact of monetary policy and financial distress on the relationship between CEO narcissism and financing decisions.Finally,conservatism is a basic convention of accounting.The behavior characteristics of senior executives inevitably have an impact on accounting conservatism of firms.This study investigates the impact of narcissistic CEOs on accounting conservatism,and the effect of firm strategy and debt level on the relationship between CEO narcissism and accounting conservatism.The main conclusions are as follows:(1)With respect to CEO narcissism and investment,this study finds that narcissistic CEOs tend to overinvest,however,financing constraints and accounting conservatism can restrain overinvestment of the firms lead by narcissistic CEOs.Moreover,there is a synergistic effect of financing constraints and accounting conservatism on the link between CEOs narcissism and their over-investment behavior.Further,I find that overinvestment increases the negative impact of narcissistic CEOs on company performance.(2)With respect to CEO narcissism and financing decisions,this study finds that narcissistic CEOs are more likely to debt,especially during the period of loose monetary policy.The relationship between CEO narcissism and equity financing is positive when narcissistic CEOs are not ultimate controlling owners and is negative when narcissistic CEOs are ultimate controlling owners.Further,narcissistic CEOs are reluctant to go for equity financing even in the case of financial distress when they are ultimate controlling owners.(3)With respect to CEO narcissism and accounting conservatism,the results show that narcissistic CEOs tend to lower the level of accounting conservatism,especially when the firms lead by narcissistic CEOs adopt aggressive strategies and the firms have high liabilities.In addition,I find that good corporate governance can restrain the decrease of accounting conservatism caused by CEO narcissism,which indicates that corporate governance has a restraining effect on the individualistic behavior of executives.This study contributes to the literature in three ways.(1)This study obtains empirical evidence that narcissistic CEOs can affect corporate investment behavior.Moreover,I introduce accounting conservatism to the relationship between CEO narcissism and overinvestment,which enriches and expands the literature of conservatism.(2)This study proves that CEO narcissism is one of the important factors affecting corporate financing policies,which enhances our understanding of the determinants of financing decisions.Moreover,few papers explore the ways of managers to get rid of shareholder control.This study investigates this question from the perspective of financing decisions and provides empirical evidence for the agency problem between narcissistic managers and owners.(3)After verifying the association between CEO narcissism and accounting conservatism,this study also analyzes the internal mechanism of this relationship from the perspective of corporate strategy and corporate debt level,which shed light on the literature on accounting conservatism and provides new evidence for upper echelons theory and agency theory.