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Corporate risk and the humpback of CEO narcissism

Review of behavioral finance, 2018-07, Vol.10 (3), p.252-273 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited 2018 ;ISSN: 1940-5979 ;EISSN: 1940-5987 ;DOI: 10.1108/RBF-07-2017-0070

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  • Title:
    Corporate risk and the humpback of CEO narcissism
  • Author: Aabo, Tom ; Eriksen, Nicklas Bang
  • Subjects: Chief executive officers ; Computer peripherals ; Hypotheses ; Literature reviews ; Narcissism ; Personality ; Personality traits ; Psychology ; Regression analysis ; Social networks ; Software ; Volatility
  • Is Part Of: Review of behavioral finance, 2018-07, Vol.10 (3), p.252-273
  • Description: Purpose The purpose of this paper is to investigate the association between CEO narcissism and corporate risk taking. Design/methodology/approach The authors provide a novel and unobtrusive measure of CEO narcissism based on LinkedIn profiling. The authors investigate the relationship between CEO narcissism and corporate risk taking (stock return volatility) for a sample of 475 US manufacturing firms in the period 2010-2014. Findings The authors find an inverse U-shape relationship between CEO narcissism and stock return volatility. The inverse U-shape relationship (the “humpback”) is caused by the paradoxical nature of the narcissistic personality in which the self-esteem is high but at the same time fragile with a combination of self-admiration and a constant need of having this positive self-view confirmed. The results are robust to alternative specifications of CEO narcissism and corporate risk taking. The results are economically meaningful. Thus, a moderate degree of CEO narcissism – as compared to a very low or a very high level of CEO narcissism – is associated with an increase in corporate risk taking of approximately 12 percent. Originality/value Previous literature provides multiple analyses on the association between managerial overconfidence and corporate decisions. As opposed to overconfidence, narcissism is a personality trait having both cognitive and behavioral dimensions. This paper provides a novel contribution to the growing literature on the association between managerial biases/traits and corporate decision-making.
  • Publisher: Leeds: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 1940-5979
    EISSN: 1940-5987
    DOI: 10.1108/RBF-07-2017-0070
  • Source: ProQuest Central
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