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JOURNAL OF MANAGEMENT ACCOUNTING RESEARCH American Accounting AssociationVol. 26, No. 2 DOI: 10.2308/jmar-506382014pp. 243–267

CEO Narcissism and Accounting: A Pictureof Profits

Kari Joseph Olsen

University of Southern California

Kelsey Kay Dworkis

The University of Melbourne

S. Mark Young

University of Southern California

ABSTRACT: This study investigates the relationship between narcissistic personality

characteristics in CEOs of Fortune 500 companies and financial performance measures

of earnings-per-share (EPS) and stock valuation. Using panel data from 1992 through

2009, we show that firms with narcissistic CEOs have higher earnings-per-share and

share price than those with non-narcissistic CEOs. We examine the mechanism driving

the observed results and find that narcissistic CEOs are more likely to increase reported

EPS through real and operational activities rather than accrual-based manipulations.

The findings suggest that narcissistic personality characteristics of top executives affect

financial performance measures through the executive’s decisions and influence over

the firm’s operational activities rather than through accrual and accounting decisions.

Keywords: narcissism; personality; earnings-per-share; earnings management; stock

prices.

Data Availability: Data available upon request.

INTRODUCTION

Chief Executive Officers (CEOs) are involved in making or approving accounting-related

decisions and their compensation is often tied to financial performances measures (Ittner,

Larcker, and Rajan 1997). As a result of the incentives CEOs face, they may be motivated

to make operational and accrual accounting decisions that improve the financial appearance of the

company, not only to increase their compensation but also to enhance their public personas

(Anderson and Tirrell 2004; Amernic and Craig 2010).

In this study, we suggest that the motivation to improve a CEO’s self-image through financial

performance measures is related to a specific personality characteristic known as narcissism. We

investigate the relationship between CEO narcissism and two key financial performance

We gratefully acknowledge the support and comments on this research project from Sarah Bonner, Clara Chen, ElizabethChuk, Adam Esplin, David Erkens, Derek Harmon, D. Kip Holderness, and Tatiana Sandino.

Published Online: October 2013

243

variables—earnings-per-share (EPS) and stock valuation (stock price). We document a statistically

significant relationship between CEO narcissism and these performance variables. We also find that

the observed relationship between CEO narcissism and the accounting performance number EPS is,

in part, explained by the CEO’s propensity to engage in operational activities that affect reported

EPS rather than discretionary accrual or accounting manipulations. That is, narcissistic CEOs are

more likely to take measures in order to increase sales and production levels rather than facilitate

discretionary accrual manipulations and share repurchases.

Previous research by Chatterjee and Hambrick (2007, 2011) shows that the narcissistic

characteristics of CEOs are positively related to key financial variables such as performance and

acquisition intensity. Other research on CEO narcissism has suggested that narcissistic

characteristics can lead to the use of accounting numbers to enhance the appearance of financial

performance in order to enhance the CEO’s self-image (Anderson and Tirrell 2004; Amernic and

Craig 2010). In addition to these archival studies, experimental results on the effects of honesty on

self-reported performance also indicate that individuals with higher narcissistic characteristics are

more likely to inflate publicly reported performance if positive social status outcomes such as

praise, acclaim, and affirmation would result (Hales, Hobson, and Resutek 2012).

We extend previous studies by examining the accounting-related outcomes affected by

narcissism. Our sample consists of 283 CEOs in 235 unique firms with a total of 1,118 firm-years

during the period 1992 to 2009. We measure CEO narcissism using a composite score based on the

size and composition of the CEO’s photograph in the annual report, the CEO’s relative cash pay,

and the CEO’s relative non-cash pay (Chatterjee and Hambrick 2007).

Our research investigates whether the narcissistic characteristics of CEOs explain variation in

reported financial performance measures such as earnings-per-share and stock price. The allure of

salient and highly publicized reported financial numbers such as EPS and stock price have the

potential to lead narcissistic CEOs to engage in managerial discretion (i.e., decisions related to firm

operations, expenditures, investments, and accounting estimations). Motivated by the desire for

praise and recognition, such instances of public attention provide opportunities for affirmation and

praise that narcissistic CEOs crave.

We also attempt to identify the underlying mechanism that drives the observed relationship

between CEO narcissism and reported EPS numbers. We suggest two possible explanations for the

positive relationship between CEO narcissism and accounting performance. First, we investigate

the propensity for executives to manage EPS through accounting choices such as discretionary

accruals, stock buybacks, or questionable reporting behavior. Second, we investigate the propensity

for executives to manage EPS through real activities such as operational changes. Results support

our hypothesis that there is a positive relationship between CEO narcissism and the financial

performance measures of EPS and share price, suggesting that accounting may provide an

opportunity for narcissistic CEOs to garner the praise and the attention they crave (Foster and

Brennan 2011). Other results indicate that narcissistic CEOs influence EPS through real activities

manipulations related to lenient credit terms, sales discounts, and overproduction; however, we do

not find evidence that CEO narcissism is related to accrual-related earnings management.

Our study contributes to the growing literature on the accounting-related outcomes of

personality characteristics (Chatterjee and Hambrick 2007; Schrand and Zechman 2012) by

providing initial evidence regarding the nature of the relationship between CEO narcissism and

financial performance measures including EPS and share price. Our findings also suggest that

narcissistic personality characteristics of top executives affect financial performance measures

through the executive’s decisions and influence over the firm’s operational activities rather than

through accrual and accounting decisions. Concurrent research is beginning to explore the impact of

narcissistic personality characteristics on the potential for financial misreporting and decision

making (Hales et al. 2012; Schrand and Zechman 2012; Dworkis 2013).

244 Olsen, Dworkis, and Young

Journal of Management Accounting ResearchVolume 26, Number 2, 2014

The remainder of the paper is organized as follows. The next section reviews prior literature

and develops our research hypothesis. Following this we describe our method, including our sample

and design. Then we present the analyses, results, and the tests of our hypotheses. Finally, we

discuss implications and future research in our conclusion.

LITERATURE

Narcissism

Narcissism is a psychological construct defined as a sense of self-importance and uniqueness,

entitlement, self-absorption, self-admiration, arrogance, exhibitionism, exploitativeness, and vanity

(Emmons 1987; American Psychiatric Association (APA) 2000; Resick, Whitman, Weingarden,

and Hiller 2009). However, narcissism can also include positive characteristics such as authority,

self-sufficiency, and superiority. These positive characteristics have been shown to predict effective

leadership, which promotes organizational performance, and attract loyal employees (Hogan and

Kaiser 2005; Maccoby 2000).1

Narcissists have a strong desire for recognition, affirmation, and praise (Resick et al. 2009) and

can be reckless in pursuing self-enhancement opportunities (Campbell, Reeder, Sedikides, and

Elliot 2000; Wallace and Baumeister 2002). Narcissists believe they are more intelligent and

physically attractive than they actually are, have a need to feel superior to others, and crave constant

admiration (Gabriel, Critelli, and Ee 1994). Narcissists are ‘‘masters at creating ways of getting

what they do need to exist: positive feedback and stroking from others,’’ (Pinsky and Young 2009,

100). Narcissists seek out situations of prominence and recognition to reaffirm their self-

importance. They become preoccupied with having their self-view confirmed or reinforced.

Studies in the finance and strategy literatures have explored the related, yet distinct,

relationship between CEO overconfidence and financial outcomes such as corporate investments,

acquisitions, CEO selection, corporate governance, and innovation (Malmendier and Tate 2005;

Brown and Sarma 2007; Goel and Thakor 2008; Malmendier and Tate 2008; Galasso and Simcoe

2011). These studies describe overconfidence as a characteristic that describes an individual’s

beliefs regarding future events. In a decision-making context, an overconfident individual

overestimates his or her abilities and skills due to past experiences or previous successes, and

assigns an inflated subjective probability to a future outcome.

Compared to overconfidence, narcissism describes a much larger set of characteristics.

Campbell, Goodie, and Foster (2004) note that much of a narcissist’s psychological and social life

involves creating a positive self-image through achieving status and esteem. Narcissists will take

actions and make decisions to foster an image of superiority regardless of their past experiences.

Campbell et al. (2004) state that a narcissist’s strong need for attention and recognition does not

necessarily apply to overconfident individuals. Because overconfidence relates to a general attitude

regarding events or occurrences, overconfident individuals can be overconfident about their own

abilities or the abilities of others. Narcissists, as we know, lack empathy and thus care little about

others. Narcissists are concerned with furthering their own agenda and, thus, measures such as the

size of a CEO’s photograph, and relative cash and non-cash pay capture the grandiosity, vanity, and

exhibitionism of the CEOs in our sample. These characteristics are dimensions of narcissism but are

distinct from the characteristic of overconfidence.

Narcissism has received a great deal of attention in academic research and the popular press

(Wallace and Baumeister 2002; Campbell et al. 2004; Twenge et al., 2008; Twenge and Campbell

2009; Bergman, Westerman, and Daly 2010; Westerman, J. W. Bergman, J. Z. Bergman, and Daly

1 We do not attempt to make normative statements about whether CEO narcissism is good or bad.

CEO Narcissism and Accounting: A Picture of Profits 245


2011). Anecdotally, narcissism has been identified as the pervasive personality characteristic of

individuals involved in high-profile scandals involving money management (e.g., Bernie Madoff ),

politics (e.g., John Edwards), and entertainment (e.g., Charlie Sheen). Narcissism is considered by

some as the dark side of executive personality (Resick et al. 2009) due to behavioral tendencies of

boastfulness, arrogance, hostility toward criticism, and excessive self-admiration. As described in

the Financial Times, ‘‘narcissistic leaders can lose touch with reality, promote self-serving and

grandiose aims, and use the company as a vehicle for personal gain. A strong sense of self-

importance may blind them to divergent points of view or to whistle-blowers, leading to poor

strategic and organizational decision making. This can end in catastrophe—witness the collapse of

Enron and WorldCom’’ (Conger 2002).

Narcissism is a personality construct that has been shown to influence an individual’s desired

interactions, response from others, and bias cognitive processing (Foster and Brennan 2011).

Campbell, Brunell, and Finkel (2006), Campbell, Bosson, Goheen, Lakey, and Kernis (2007),

Campbell and Foster (2007), and Campbell and Green (2008) describe four fundamental aspects

of a narcissist’s self-regulatory system that ‘‘control’’ the behavior, decisions, and actions of a

narcissist. First, narcissists are extremely self-focused in their goal setting (e.g., place more value

on getting ahead than on getting along socially). Second, narcissists have a high-approach

orientation (i.e., motivated more strongly by reward than by punishment). Third, narcissists have

an entitled and inflated view of the self; and fourth, narcissists have a general desire for self-

esteem (Foster and Brennan 2011). This four-prong model of a narcissist’s motivation presents a

guiding framework for the development of our hypotheses concerning the effects of narcissistic

behavior in CEOs.

Narcissism and Accounting—Hypotheses Development

While narcissism among CEOs has been discussed in the popular press, research on CEO

narcissism is in its nascent stages.2 Chatterjee and Hambrick (2007) examine firms in the

computer software and hardware industries. They find that narcissistic CEOs favor bold strategic

actions, such as the number and size of acquisitions, which will draw attention to the CEO and

his/her company. O’Reilly, Doerr, Caldwell, and Chatman (2013) find that more narcissistic

CEOs receive more compensation (salary, bonus, and options) and have larger discrepancies

between their compensation and the other members of their executive team. Hales et al. (2012)

find evidence suggesting that narcissistic individuals inflate their publicly reported performance

when there are positive social status implications. We extend these results by examining whether

there is an actual empirical relationship between narcissistic CEOs and reported financial

performance measures.

Narcissists seek affirmation for their inflated sense of self-importance. The need for self-

enhancement stems from a vulnerable level of self-esteem that is masked by grandiosity and a

constant desire for affirmation (Zeigler-Hill and Jordan 2011; Wallace 2011). Published profit

results such as EPS, which are publicly reported quarterly and annually, forecasted and followed by

analysts, and covered by the media, are a possible means for narcissistic CEOs to satisfy their need

for affirmation and adulation (Amernic and Craig 2010, 85). Craig and Amernic (2011, 8) discuss

how Enron’s 2000 letter to shareholders is ‘‘rife with overtones of individual and corporate

narcissism.’’ This letter to shareholders proclaimed Enron to be ‘‘laser-focused on earnings per

share’’ (Enron 2000, 4). The salience of the reported EPS creates a self-enhancement opportunity to

fuel the narcissist’s need for affirmation and adulation from others (Wallace and Baumeister 2002).

2 Amernic and Craig (2010) note that as of 2010 there have been no published studies focusing on the associationbetween narcissism and accounting.



These public and focused upon accounting measures could facilitate narcissistic behavior based on

the narcissist’s self-promotion motivations—the better the reported EPS number, the better the CEO

looks. Any accompanying credit, praise, attention, and applause about the reported EPS and the

company serve to support the narcissistic CEO’s grandiose sense of self-importance and deep desire

for admiration.

We hypothesize that narcissistic CEOs can use accounting reporting mechanisms to facilitate

the attention that they desire. As such, we predict that EPS will have a positive relation with CEO

narcissism. We focus on EPS as a central financial performance indicator in our first test for many

reasons: (1) shareholders place great emphasis on EPS, perhaps more so than any other accounting

number, (2) the business press focuses on it and makes it the most visible accounting number, (3)

analysts concentrate on forecasting EPS, (4) EPS are announced frequently—quarterly and

annually, (5) the calculation of EPS is strongly affected by accounting-related estimates, policies,

and judgment, and (6) senior executives compensation is often tied to EPS (Ittner et al. 1997).3

Given the research that indicates the importance and salience of EPS, it is likely that EPS is a

channel through which narcissistic CEOs receive the needed affirmation they crave to support their

inflated sense of self-importance.

H1: CEO narcissism is positively associated with earnings-per-share (EPS).

Amernic and Craig (2010) point out that accounting practices can be tailored to reflect a

picture of financial performance that is more flattering and ego satisfying for a CEO. Due to the

subjectivity, estimates, judgments, and GAAP-based rules that are part of financial accounting,

there is considerable potential for the language, methods, and tenants of financial accounting to be

a facilitator or enabler of extreme narcissistic behaviors (Amernic and Craig 2010). Accordingly,

managers can make accounting choices that influence reported earnings to reflect better on

themselves. For example, EPS can be increased through its numerator, earnings, by discretionary

accruals that cause income to be higher or expenses to be lower. EPS can also be increased

through its denominator, shares outstanding, by reducing the number of shares outstanding

through stock buybacks (Griffin and Zhu 2010; Hribar, Jenkins, and Johnson 2006). This

phenomenon is known as EPS accretion, or the effect that share repurchases can have on EPS

(Hribar et al. 2006).

In addition to simply managing EPS upward to show better performance, these accounting

choices could be used to improve EPS with the goal of meeting or beating analysts’ forecasts.

Meeting or beating analysts’ forecasts is generally viewed as a positive outcome for a firm and

would reflect well on the CEO. Thus, narcissistic CEOs desiring a financial picture of their firm that

brings praise and attention can influence accounting choices to meet or exceed expectations.

In more extreme cases, accounting choices to manage earnings can lead to restatements. Some

tension exists regarding whether ex ante CEO narcissism would be related to the likelihood of a

restatement. A restatement would tarnish a CEO’s reputation, and narcissistic CEOs would

therefore likely try to avoid having restatements. On the other hand, a recent study found that

narcissistic CEOs engage in questionable accounting behaviors that are more likely to result in a

restatement (Schrand and Zechman 2012).

Besides accounting choices, CEOs can also manage earnings through operational choices.

Specifically, earnings, the numerator of EPS, can be increased through real activities that are tied

to a company’s management of operational—rather than accounting—related choices or

decisions. These operational activities are changes or deviations from normal business practices

and are used to influence reported earnings (Roychowdhury 2006). Examples of such actions

3 Ittner et al. (1997) report that 28.5 percent of their sample firms use EPS in CEO compensation plans.



include price discounts or lenient credit terms to increase sales, increased production to decrease

per-unit fixed costs or to push costs to inventory on the balance sheet, and a reduction in

discretionary spending related to advertising, research and development, or selling, general, and

administrative expenses. Thus, the risk-taking behavior of CEOs can manifest itself through the

operations of the firm and be a mechanism by which reported EPS becomes more favorable. In

summary, we hypothesize that earnings management is an underlying mechanism through which

narcissistic CEOs influence EPS.

H2: CEO narcissism is associated with the propensity to manage EPS.

Similar to EPS, share price is a public financial performance measure that can be a vehicle for

garnering public acclaim and attention to affirm a narcissistic CEO’s sense of self-importance. The

higher the company’s share price, the better the reflection on the CEO. Also, in valuation models,

higher EPS leads to higher share price (Ohlson and Juettner-Nauroth 2005). Thus, financial

performance measures such as EPS may also be a means to an end in the form of equity incentives

whose value is contingent upon the share price of the firm. Most CEOs have a significant portion of

their wealth tied to their firm (Healy and Whalen 1999). As a result, CEOs have a direct incentive to

increase their company’s share price. An increase in the share price of the firm will result in an

increase in their own personal wealth (a status symbol), as well as self-enhancement through media

publicity and possible fanfare from the shareholders. Empirical evidence on earnings management

has shown a distinct relationship between CEO incentives and earnings management (Healy and

Whalen 1999; Bergstresser and Philippon 2006), as well as the likelihood of beating analysts’

forecasts (Cheng and Warfield 2005). As Dechow and Skinner (2000) point out, managers are

increasingly sensitive to the level of their firm’s stock price.

We predict that CEOs with higher levels of narcissism will generate a higher stock price

through either reported accounting numbers and/or the use of signals not captured by the reported

earnings numbers. Such signals may indicate a higher value to the market but may not be captured

in aggregate earnings due to the conservative nature of earnings. As such, the firm’s stock price

presents an unregulated (as opposed to accounting numbers under GAAP) setting to examine

market reaction to narcissistic CEOs.

H3: CEO narcissism is positively associated with stock price.

METHOD

Dataset

Our sample consists of CEOs of the largest public companies in the United States. Prior studies

have examined the computer software and hardware industries (Chatterjee and Hambrick 2007;

Schrand and Zechman 2012; O’Reilly et al. 2013). We expand the examination of CEO narcissism

by focusing on Fortune 500 companies using the 2010 list of Fortune 500 companies. Fortune 500

companies are high-profile firms that provide opportunities for individuals with narcissistic

characteristics to gain self-affirmation and attention. Even so, executive characteristics will vary

across these firms drawn from numerous different industries and settings. Of the 500 companies

listed in 2010, 477 of them are public companies. After identifying this initial set of companies,

several data requirements and filters are imposed to fit the overall design of the study. We use

Chatterjee and Hambrick’s (2007) approach to studying the effects of narcissistic CEOs on

company strategy and performance as the methodological model to study the relationship of CEO

narcissism and EPS and stock price.

At least four or more years of tenure for each CEO along with the requirement that the CEO

began his/her tenure after 1991 are required. The tenure length requirement is a critical design



choice because it allows the measurement of narcissistic tendencies in years two and three of the

CEO’s tenure, with the first year being omitted due to anomalies that arise with CEO turnover and

succession. Tenure years four and beyond are then used to test the effects of narcissism. The lagged

design of our sample accommodates findings that narcissism is a stable personality disposition

(Chatterjee and Hambrick 2007). Narcissism is considered invariant across years and is measured

temporally prior to the measurement of company measures. This design removes any circular or

recursive relationship between the narcissism measure and the dependent variables. The

requirement that the CEO started his/her tenure after 1991 arises because the earliest that some

of the data included in this analysis were available in digital form is 1992.

We identified the CEO for each firm-year from fiscal year 1992 through fiscal year 2009 where

the CEO had a tenure length of at least four years. We require that company financial data from

Compustat, ExecuComp, and Audit Analytics are available for each year and each variable included

in the model. Additionally, measurement of CEO narcissism requires that the company’s annual

report for years two and three of each CEO’s tenure be available in digital form. We gathered

annual reports from Mergent Online and company web sites. After imposing the data requirements,

the sample for evaluating EPS and share price has 283 CEOs4 in 235 unique firms with 1,118 firm-

year observations for testing the effects of narcissism.5 The sample is comprised of 278 males and 5

females with an average starting year of 2000.

Models and Variables

Narcissism Measure

Narcissistic personality characteristics are most commonly measured using the Narcissistic

Personality Inventory (NPI) (Raskin and Terry 1979, 1988).6 The NPI is a 40-item, forced choice,

self-reported instrument. Understandably, CEOs of major public companies are not apt to fill out

such surveys. As a result, prior management literature has attempted to measure narcissism in CEOs

using unobtrusive measures. Unobtrusive measures can be a workable and credible alternative to

self-reported measures (Webb and Weick 1979). The prominence of the CEO’s photograph in the

company’s annual report along with measures of relative cash and non-cash pay have been used as

an unobtrusive measure, in prior literature, to capture narcissistic tendencies (Chatterjee and

Hambrick 2007; Schrand and Zechman 2012).

We measure a CEO’s narcissism using a composite measure based on the CEO’s relative cash

pay to the second-highest paid executive, the CEO’s relative non-cash pay to the second-highest

paid executive, and on the size and composition of CEO’s picture in the annual report. The relative

cash pay measure is calculated as the ratio of the CEO’s salary and bonus to that of the second-

highest paid executive. Relative non-cash pay is calculated as the ratio of the CEO’s total

compensation (TDC1 in ExecuComp) less cash compensation to that of the second-highest paid

executive. Both of the relative pay measures are averaged over the second and third year of the

CEO’s tenure. In addition to the supportive evidence of these two measures provided by Chatterjee

and Hambrick (2007), O’Reilly et al. (2013) find that more narcissistic CEOs have more total direct

compensation and have greater discrepancies in their pay compared to that of their executive team.

These two measures seem to be reasonable unobtrusive indicators of CEO narcissism.

4 Three of the 283 CEOs are included for two different companies. Thus, there are 280 unique individuals.5 Chatterjee and Hambrick’s (2007) sample had 111 CEOs in 105 unique firms with 352 firm-years.6 In this study, and consistent with the literature, we assess narcissistic characteristics of individuals at the sub-

clinical level. In other words, we are not studying narcissistic personality disorder (NPD), which must be doneusing highly trained clinicians.



Finally, as discussed above, narcissists are those with an inflated self-concept, a grandiose

sense of self-importance, and a strong desire for recognition and affirmation (Resick et al. 2009,

1367). They are unrelenting in seeking out opportunities for personal glory (Campbell et al. 2000;

Wallace and Baumeister 2002). While the CEO photograph could be considered a standard feature

of an annual report, not all companies include a CEO photograph and when one is included, the

prominence varies. We consider the prominence of a CEO’s photograph to be an appropriate

unobtrusive measure for narcissistic personality tendencies because CEOs with greater narcissistic

tendencies seek out recognition and admiration to support their inflated self-concept. A more

prominent photograph in the annual report would draw the attention of the financial statement user

and promote the recognition that the narcissistic CEO desires.

After examining approximately 700 annual reports, we form five categories as to distinguish

the prominence of the CEO’s photograph. We rate the prominence of the CEO’s photograph in the

annual report as follows:

(1) No photograph of the CEO;

(2) The CEO was photographed with other executives;

(3) CEO’s photograph was of him or her alone and occupied less than half the page;

(4) CEO’s photograph was of him or her alone and occupied more than half of the page with

text taking up some space on the page; and

(5) CEO’s photograph was of him or her alone and occupied the whole page.

This classification of the prominence of CEOs’ photographs in annual reports is similar, but not

identical to that used by Chatterjee and Hambrick (2007). We create an additional category for CEO

photographs that take up an entire page in the annual report based on our examination of the annual

reports. As with the relative pay measures, the photograph score measure is averaged over the

second and third year of the CEO’s tenure. Panel C of Table 1 shows the distribution of the CEO

photograph scores.

Next, we conduct a factor analysis to confirm that the three components are capturing the same

construct. We find that the factor analysis loads on a single factor (using an eigenvalue above 1.0 as

our factor-loading threshold). We use the factor weightings to create a summary measure of CEO

narcissism.7,8

To further validate the appropriateness of our narcissism measure, we examine whether our

narcissism measure reflects a change due a new CEO or simply a constant firm effect. We use a

similar approach to Chatterjee and Hambrick (2007; hereafter C&H) by comparing the narcissism

score for CEOs who appear at two different companies in our dataset (three CEOs in our dataset;

C&H had five in their dataset) and by comparing companies with two different CEOs in our dataset

(45 firms in our dataset; C&H had six in their dataset). We find a strong correlation between the two

narcissism scores from the CEOs who appear twice (r ¼�0.86; C&H reported a correlation of

0.90). Additionally, these three CEOs’ narcissism scores would all be classified the same in our

narcissism dummy variable. In the other circumstance, where we have two different CEOs at the

same company, we do not find the correlation between the two-firm narcissism scores to be as

strong (r¼ 0.25; C&H reported a correlation of�0.46). These comparisons provide evidence that

narcissism scores are not related to company tendencies. The within-person consistency along with

the within-firm inconsistency indicates that the narcissism scores reflect more about the individual

CEOs than the firms.

7 The factor loadings are 0.777 for relative cash pay, 0.794 for relative non-cash pay, and 0.501 for photographsize.

8 Our results are similar if we use a simple average of the three components rather than using the factor loadingweights.



Panel A of Table 1 provides the descriptive statistics for our narcissism measure. Panel B of

Table 1 shows the correlations among the three component measures of our narcissism score that

are significantly and positively correlated at the 0.01 level. We also create a binary measure of the

narcissism score that is equal to 1 if the narcissism score is greater than average, and 0 otherwise.

TABLE 1

CEO Narcissism Measure

Panel A: Descriptive Statistics

n MeanStandardDeviation Minimum Maximum

CEO Photo Sizea 283 2.79 0.92 1.00 5.00

Relative Cash Payb 283 1.85 0.64 0.54 4.81

Relative Non-Cash Payc 283 2.72 1.59 �3.14 11.03

Narcissism Scored 283 0.00 1.49 �3.52 5.77

Narcissism Binarye 283 0.51 0.03 0.00 1.00

a Photo size based on scaled of 1 to 5 as follows: (1) No photograph of the CEO; (2) The CEO was photographed withother executives; (3) CEO’s photograph was of him or her alone and occupied less than half the page; (4) CEO’sphotograph was of him or her alone and occupied more than half of the page with text taking up some space on thepage; and (5) CEO’s photograph was of him or her alone and occupied the whole page.

b CEO’s cash pay relative to the second-highest paid executive.c CEO’s non-cash pay relative to the second-highest paid executive.d Computed as a summary measure of the CEO photo size, relative cash pay, and relative non-cash pay using the factor

weightings from a factor analysis.e An indicator variable of 1 if Narcissism Score is greater than average, and 0 otherwise.

Panel B: Correlations

CEO Photo SizeRelative

Cash PayRelative

Non-Cash Pay

CEO Photo Size 1.00

Relative Cash Pay 0.23*** 1.00

Relative Non-Cash Pay 0.18*** 0.38*** 1.00

*** Correlation is significant at the 0.01 level (two-tailed).

Panel C: Breakdown of CEO Photo Size

Average CEOPhoto Size Frequency

Percentage ofCEOs

1 21 7%

1.5 3 1%

2 67 24%

2.5 27 10%

3 98 35%

3.5 23 8%

4 27 10%

4.5 9 3%

5 8 3%

Total CEOs 283



This binary measure variable represents a threshold point of evaluation rather than a continuous

scale. Results are similar using both measures.

EPS

We first examine the association between CEO narcissism and earnings-per-share. Earnings-

per-share (EPS) is the most visible and scrutinized accounting number. Further, as discussed above,

EPS is posited to be a facilitator of narcissistic behavior. Earnings-per-share is measured in the focal

year (tþn) where n . 2. The year the CEO takes office is designated as time t. The narcissism

measure is calculated by taking the average narcissism score of year two and year three (time tþ1

and tþ2). Year four (tþ3) of the CEO’s tenure and extending throughout the CEO’s tenure are then

the focal years wherein EPS is measured.

We include several control variables to take into account other related factors. To control for

overall trends, we control for the year in which the CEO took office (TenureStarti,t). To control for

other CEO characteristics, we include control variables for the CEO’s age (CEOagei,tþn�1), the

CEO’s time in office, (CEOtenurei,tþn�1), whether the CEO is also the chairman of the board

(CEOchairi,tþn�1), and whether the CEO is a male or female (Gender—with males being coded as a

1). As a control for the entry conditions when the CEO took office, we include controls for EPS and

firm performance in the year prior to the CEO taking office (EPSi,t�1 and ROAi,t�1, respectively). To

control for the prior-year EPS and firm performance, we include controls for EPSi,tþn�1 and

ROAi,tþn�1. We also include controls for firm size (LnATi,tþn�1) and for current year performance

(ROAi,tþn). Finally, we include industry dummies using two-digit SIC codes. We estimate the model

using panel data regression with robust standard errors clustered by CEO.

Earnings Management

Accounting Choices

We next examine whether CEO narcissism is related to the propensity to manage EPS. We

conduct several analyses to determine if, and what type of, earnings management is occurring.

Numerator effect—discretionary accruals. We estimate discretionary accruals using a

modified-Jones model run by industry and year (Dechow, Sloan, and Sweeney 1995). We examine

whether CEO narcissism is related to discretionary accruals by regressing discretionary accruals on

CEO narcissism and other common drivers of discretionary accruals including leverage (Debt-to-Equityi,tþn), valuation (Book-to-Marketi,tþn), and size (LnATi,tþn�1) (Bowen, Rajgopal, and

Venkatachalam 2008). We estimate the model using panel data regression with robust standard

errors clustered by CEO.

Denominator effect—stock buyback and EPS accretion. To examine whether CEO

narcissism is related to use of stock buybacks to influence EPS, we use a dummy variable as our

dependent variable that classifies a firm-year as a buyback company or not.9 We use logistic

regression to examine whether narcissistic CEOs are more likely to be classified as a buyback firm

after controlling for performance (ROEi,tþn), leverage (Debt-to-Equityi,tþn), valuation (Book-to-Marketi,tþn), size (LnATi,tþn�1), ownership structure (% Institutional Ownershipi,tþn), the CEO’s age

(CEOagei,tþn�1), whether the CEO is the chairman of the board (CEOchairi,tþn�1), and year effects

(Griffin and Zhu 2010; Hribar et al. 2006).

We also examine EPS accretion by creating an ‘‘as-if’’ EPS to capture what EPS would have

been without repurchases. EPS accretion is calculated as the difference between actual EPS and the

9 We define a buyback company in year t, following Griffin and Zhu (2010) and Hribar et al. (2006) as a 1 if(prstkct � prstkpct . 0), and 0 otherwise.



‘‘as-if’’ EPS. We examine whether CEO narcissism is related to EPS accretion after controlling for

performance (ROEi,tþn), leverage (Debt-to-Equityi,tþn), valuation (Book-to-Marketi,tþn), size

(LnATi,tþn�1), ownership structure (% Institutional Ownershipi,tþn),10 the CEO’s age

(CEOagei,tþn�1), whether the CEO is the chairman of the board (CEOchairi,tþn�1), and industry

and year effects (Hribar et al. 2006). We estimate the model using panel data regression with robust

standard errors clustered by CEO.

Probability of restatement. Next, we examine restatements to see if narcissistic CEOs are

more likely to engage in accounting behaviors that ultimately require restatement. We gather

restatement data from the GAO Financial Statement Restatement Database. This database was

constructed using a Lexis-Nexis text search based on variations of the word ‘‘restate’’ and contains

approximately 2,309 restatements between January 1997 and September 2005. For observations

within those years in our dataset, we run a logistic regression of a dummy variable for restatement

on our measure of CEO narcissism while controlling for whether the CEO is also the chairman of

the board (CEOchairi,tþn�1), leverage (Debt-to-Equityi,tþn), sensitivity to accrual adjustments (cashflow/net incomei,tþn), size (LnATi,tþn�1), performance (ROAi,tþn), and year effects.

Probability of meeting or beating analysts’ forecasts. In order to examine the relationship

between CEO narcissism and meet-or-beat behavior, we use consensus analyst forecasts of EPS for

year-end earnings from the Thomason Financial Spectrum database. We create a Meet-or-Beatvariable as our dependent variable with 1 indicating that the firm met or exceeded the consensus

analyst forecast. We use a logistic regression to examine whether narcissistic CEOs are more likely

to meet or beat the consensus analyst forecast even after controlling for performance (ROAi,tþn;

Annual stock returni,tþn), valuation (Book-to-Marketi,tþn), and year fixed effects.

Operational Choices

Numerator effect—earnings management through real-activities manipulation. We use

three measures to examine whether CEO narcissism is related to earnings management through real

activities. We follow prior literature in obtaining estimates for Abnormal Cash Flow from

Operations, Abnormal Production, and Abnormal Discretionary Expenditures (Cohen and Zarowin

2010; Roychowdhury 2006; Dechow, Kothari, and Watts 1998).11 Abnormal Cash Flow from

Operations can arise from sales manipulations that accelerate the timing of sales or generate

additional unsustainable sales, both of which would increase reported earnings. This can occur by

increasing price discounts or extending more lenient credit terms. Abnormal Production can

increase reported earnings by lowering production costs charged to the income statement. By

increasing inventory the COGS per unit sold decreases, and the fixed overhead production costs

allocated to the inventory account on the balance sheet increases. Abnormal Discretionary

Expenditures can increase reported earnings by reducing the amount of advertising expenses,

research and development (R&D) expenses, and selling, general, and administrative (SG&A)

expenses. We regress each of these measures on our measure of CEO narcissism and other relevant

control variables including ownership structure (% Institutional Ownershipi,tþn), CEO’s bonus

compensation as percentage of total compensation (Bonus Compensationi,tþn), CEO’s non-cash

compensation as a percentage of total compensation (Non-cash Compensationi,tþn), performance

(ROAi,tþn), ease of affecting EPS (Lnshares Outstandingi,tþn), size (LnATi,tþn�1), leverage (Debt-to-

10 Institutional holdings data come from the Thomas Reuters Institutional Holdings database.11 Specifically, we follow equations 3, 6, and 8 from Cohen and Zarowin (2010) to estimate Abnormal CFO,

Abnormal PROD, and Abnormal DISX. We multiply Abnormal CFO and Abnormal DISX by�1 so that with eachmeasure a higher amount corresponds to a higher likelihood that a firm is engaged earnings management throughreal-activity manipulation.



Equityi,tþn), valuation (Book-to-Marketi,tþn), current resources available (Current Ratioi,tþn),

whether a firm is in the manufacturing industry (two-digit SIC codes 20–39), discretionary

accruals (DAcci,tþn), whether the firm met or exceeded analysts’ forecast (Meet-or-Beat from

above), and whether the CEO is the chairman of the board (CEOchairi,tþn�1) (Cohen and Zarowin

2010; Zang 2006; Roychowdhury 2006).

Stock Price

Next we examine the association between CEO narcissism and stock price. We use the firm’s

annual closing stock price for their fiscal year, time tþn in our model. We include several control

variables in the model. We control for last year’s annual closing stock price (Pricei,tþn�1). We also

include controls for current year earnings-per-share (EPSi,tþn) and book value (BVi,tþn). To control

for risk factors, we include controls for valuation (Book-to-Marketi,tþn), leverage (Debt-to-Equityi,tþn), and size (LnATi,tþn�1). We also include industry dummies using two-digit SIC codes.

We estimate the stock price model using panel data regression with robust standard errors clustered

by CEO.

ANALYSIS AND RESULTS

Table 2 presents the list of the industries, as well as the number of firms classified in each

category. Panel A of Table 3 presents a list of variable descriptions. Panel B of Table 3 presents

descriptive statistics. Variable correlations are presented in Table 4.

EPS Results

Table 5 presents the results from the panel regression testing the relationship of CEO

narcissism with EPS. Results show that there is a statistically significant positive relationship

between CEO narcissism and EPS (0.121; p ¼ 0.021)12 after controlling for factors related to the

CEO, firm, and industry. This finding is in line with our first hypothesis and supports that

narcissistic CEOs do have higher EPS, which can bring them the attention and praise they so crave.

Earnings Management Results

Our initial finding that narcissistic CEOs have higher EPS does not directly address the

question of the underlying mechanisms leading to higher EPS. On one hand, there may be

something about individuals with narcissistic personality tendencies that helps them excel in

executive leadership positions and perform better (Maccoby 2000). Alternatively, reported

accounting numbers can be affected by earnings management that would increase EPS. We test for

evidence of earnings management by looking at accounting choices and operational choices.

Accounting Choices

Numerator effect—Discretionary accruals. In Panel A of Table 6, we find no evidence that

CEO narcissism is related to either signed (p¼0.595) or absolute (p¼0.551) discretionary accruals

after controlling for other common drivers of discretionary accruals including leverage (Debt-to-Equityi,tþn), valuation (Book-to-Marketi,tþn), size (LnATi,tþn�1), and industry (Bowen et al. 2008).

These findings do not support a relationship between CEO narcissism and the use of discretionary

accruals to increase reported EPS.

12 Using the binary measure of narcissism, the coefficient is 0.274 and p-value is 0.028.



TABLE 2

Two-Digit SIC Code Industry Breakdown

CodeNumber SIC Code Description Firms

Percentageof Sample

10 Metal Mining 3 1.1%

12 Coal Mining 1 0.4%

13 Oil and Gas Extraction 4 1.4%

16 Heavy Construction, Except Building 2 0.7%

20 Food and Kindred Products 15 5.3%

21 Tobacco Products 2 0.7%

22 Textile Mill Products 1 0.4%

23 Apparel and Other Textile Products 1 0.4%

25 Furniture and Fixtures 1 0.4%

26 Paper and Allied Products 7 2.5%

27 Printing and Publishing 4 1.4%

28 Chemicals and Allied Products 27 9.5%

29 Petroleum and Coal Products 10 3.5%

30 Rubber and Misc. Plastics Products 3 1.1%

33 Primary Metal Industries 3 1.1%

34 Fabricated Metal Products 7 2.5%

35 Industrial Machinery and Equipment 17 6.0%

36 Electronic and Other Electric Equipment 15 5.3%

37 Transportation Equipment 14 4.9%

38 Instruments and Related Products 16 5.7%

39 Misc. Manufacturing Industries 1 0.4%

40 Railroad Transportation 3 1.1%

42 Trucking and Warehousing 4 1.4%

45 Transportation by Air 3 1.1%

47 Transportation Services 1 0.4%

48 Communication 4 1.4%

49 Electric, Gas, and Sanitary Services 31 11.0%

50 Wholesale Trade—Durable Goods 8 2.8%

51 Wholesale Trade—Nondurable Goods 7 2.5%

52 Building Materials, Hardware, Garden Supply, and Mobile 3 1.1%

53 General Merchandise Stores 10 3.5%

54 Food Stores 1 0.4%

55 Automotive Dealers and Service Stations 8 2.8%

56 Apparel and Accessory Stores 5 1.8%

57 Furniture and Home Furnishings Stores 3 1.1%

58 Eating and Drinking Places 4 1.4%

59 Miscellaneous Retail 5 1.8%

63 Insurance Carriers 5 1.8%

64 Insurance Agents, Brokers, and Service 1 0.4%

65 Real Estate 1 0.4%

72 Personal Services 1 0.4%

73 Business Services 13 4.6%

75 Auto Repair, Services, and Parking 2 0.7%

80 Health Services 6 2.1%

Total Firms 283



Denominator effect—stock buyback and EPS accretion. In Panel B of Table 6, we do not

find evidence that firms led by narcissistic CEOs are more likely to be classified as a buyback firm

(p ¼ 0.724) after controlling for performance (ROE), leverage (Debt-to-Equity ratio), valuation

(Book-to-Market ratio), size (natural logarithm of total assets), ownership structure (% Institutional

Ownership), the CEO’s age, whether the CEO is the chairman of the board, and year effects (Griffin

and Zhu 2010; Hribar et al. 2006). Further, in Panel C of Table 6, we find no evidence that CEO

narcissism is related to EPS accretion (p¼0.527) after controlling for performance (ROE), leverage

TABLE 3

Variable Descriptions and Statistics

Panel A: Variable Descriptions

Variable Description

Narcissismi A summary measure of CEO photo size, relative cash pay, and relative non-cash

pay based on factor loadings.

Narcissism Binaryi Indicator variable of 1 if Narcissism Score is greater than average, and 0

otherwise.

CEOagei,tþn�1 The age of the CEO.

CEOchairi,tþn�1 An indicator variable of whether the CEO is also the chairman of the board.

CEOtenurei,tþn�1 Length of the CEO’s tenure.

TenureStarti,t When the CEO took office.

Genderi An indicator variable of 1 for male, and 0 for female.

EPSi,t�1 Earnings-per-share in the year prior to the CEO taking office.

ROAi,t�1 Return-on-assets in the year prior to the CEO taking office.

LnATi,tþn�1 Natural logarithm of total assets.

ROAi,tþn�1 Return-on-Assets in the prior year.

CRi,tþn�1 Current ratio (current assets/current liabilities).

EPSi,tþn�1 Earning-per-share in the prior year.

ROAi,tþn Return-on-Assets (net income/total assets).

Pricei,tþn Closing stock price.

Pricei,tþn�1 Prior year’s closing stock price.

EPSi,tþn Earnings-per-share.

BVi,tþn Book value.

B/Mi,tþn Book-to-Market ratio.

D/Ei,tþn Debt-to-Equity ratio.

SOX An indicator variable for post-2002.

DAcci,tþn Discretionary accruals estimated with modified Jones model.

Buyback Firmi,tþn An indicator variable of whether a firm was a net stock repurchaser defined as a

1 if (prstkct � prstkpct . 0), and 0 otherwise.

EPS Accretioni,tþn The difference between actual EPS and the ‘‘as-if’’ EPS, which is EPS without

repurchases taking place.

Restatementi,tþn An indicator variable of whether the firm had a restatement in a given year.

Meet-or-Beati,tþn An indicator variable of whether the firm met or exceeded the consensus analyst

forecast.

Abnormal CFOi,tþn Abnormal Cash Flow from Operations.

Abnormal PRODi,tþn Abnormal Production.

Abnormal DISXi,tþn Abnormal Discretion Expenditures (advertising expenses, R&D expenses, and

SG&A expenses).

Annual stock returni,tþn One-year stock return.

(continued on next page)



(Debt-to-Equity ratio), valuation (Book-to-Market ratio), size (natural logarithm of total assets),

ownership structure (% Institutional Ownership), the CEO’s age, whether the CEO is the chairman

of the board, industry and year effects (Hribar et al. 2006). Thus, it does not appear from these tests

that narcissistic CEOs increase EPS through the denominator of shares outstanding.

Probability of restatement. In Panel D of Table 6, we find no evidence that CEO narcissism

is related to the likelihood of having restatement (p¼ 0.561). Narcissistic CEOs do not appear to

influence the likelihood of material misstatements of financial statements in order to increase EPS.

It is also possible that increased monitoring (through auditor scrutiny) explains the lack of

association between narcissism and restatement (Johnson, Kuhn, Apostolou, and Hassell 2013).

Probability of meeting or beating analysts’ forecasts. In Panel E of Table 6, we find that

narcissistic CEOs are more likely to meet or beat the consensus analyst forecast (p¼ 0.041) even

after controlling for performance (ROA and annual stock return), valuation (Book-to-Market), and

year fixed effects. This finding provides further evidence that CEOs exhibit actions, either

increasing performance or engaging in earnings management, to meet or beat analysts’ forecasts.

While the earnings management tests above do not indicate that accrual-based manipulations

(discretionary accruals), outstanding-share effects (buybacks and EPS accretion), or questionable

accounting practices (restatements) are related to CEO narcissism, the meet-or-beat test suggests

that there is an underlying mechanism through which narcissistic CEOs increase reported EPS. To

TABLE 3 (continued)

Panel B: Descriptive Statistics

Variable n Mean Std. Dev. Min. Max.

CEOagei,tþn�1 1,118 55.02 5.06 41.00 69.00

CEOchairi,tþn�1 1,118 0.79 0.41 0.00 1.00

CEOtenurei,tþn�1 1,118 5.19 2.07 3.00 13.00

TenureStarti,t 1,118 2000 3 1993 2006

Genderi 1,118 0.98 0.14 0.00 1.00

EPSi,t�1 1,118 1.51 2.54 �13.16 11.42

ROAi,t�1 1,118 0.05 0.07 �0.22 0.27

LnATi,tþn�1 1,118 9.11 1.14 5.71 12.34

ROAi,tþn�1 1,118 0.06 0.07 �0.85 0.33

CRi,tþn�1 1,118 1.66 1.51 0.00 27.39

EPSi,tþn�1 1,118 2.29 3.39 �41.17 27.45

ROAi,tþn 1,118 0.06 0.07 �0.63 0.33

Pricei,tþn 1,118 43.93 24.34 0.84 189.56

Pricei,tþn�1 1,118 44.15 24.39 0.70 189.56

EPSi,tþn 1,118 2.24 3.48 �41.17 23.59

BVi,tþn 1,118 7589.44 13060.51 �433.07 115392.00

B/Mi,tþn 1,118 0.46 0.38 �0.26 7.05

D/Ei,tþn 1,118 1.68 33.78 �1024.83 442.73

SOX 1,118 0.81 0.39 0.00 1.00

DAcci,tþn 933 �0.03 0.19 �2.71 0.55

Buyback Firmi,tþn 1,103 0.69 0.46 0.00 1.00

EPS Accretioni,tþn 1,103 �0.24 1.06 �13.07 10.04

Restatementi,tþn 536 0.05 0.21 0.00 1.00

Meet-or-Beati,tþn 723 0.56 0.50 0.00 1.00

Abnormal CFOi,tþn 1,118 �0.14 1.01 �18.75 11.80

Abnormal PRODi,tþn 1,118 �0.10 1.60 �24.60 13.43

Abnormal DISXi,tþn 1,118 0.28 1.95 �13.99 20.78



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further explore the underlying mechanism, we next report our tests examining the use of real-

activities earnings management.

Operational Choices

Earnings management through real-activities manipulation. In Table 7, we present the

results of the regressions for the three proxies of real-activities manipulation. In support of H2, we

find that CEO narcissism is significantly related to Abnormal Cash Flow from Operations

(Abnormal CFO, p ¼ 0.011) and Abnormal Production (Abnormal PROD, p ¼ 0.072), but not to

Abnormal Discretionary Expenditures (Abnormal DISX, p ¼ 0.977).13 The positive coefficient on

CEO narcissism in the Abnormal CFO and Abnormal PROD regressions indicates that higher levels

of CEO narcissism are associated with greater real-activities manipulations that increase EPS. This

TABLE 5

CEO Narcissism and Earnings-Per-SharePanel Regression

Variable Pred. Coefficient p-value Coefficient p-value

Proxies for Narcissism

Narcissismi þ 0.121** 0.021

Narcissism Binaryi þ 0.274** 0.028

Control Variables

CEOagei,tþn�1 0.004 0.743 0.005 0.730

CEOchairi,tþn�1 0.194 0.209 0.215 0.179

CEOtenurei,tþn�1 0.047 0.346 0.044 0.382

TenureStarti,t 0.054** 0.037 0.055** 0.046

Genderi 0.979*** 0.003 0.969*** 0.003

LnATi,tþn�1 0.143* 0.073 0.152* 0.067

EPSi,t�1 0.142** 0.033 0.137** 0.044

ROAi,t�1 �4.794* 0.072 �4.788* 0.077

ROAi,tþn�1 �16.604*** 0.000 �16.748*** 0.000

EPSi,tþn�1 0.311*** 0.001 0.316*** 0.001

ROAi,tþn 39.821*** 0.000 39.801*** 0.000

Industry Included Included

Firm-years 1,118 1,118

CEOs 283 283

Overall R2 0.605 0.604

*, **, *** Significant at the 0.10, 0.05, and 0.01 level, respectively.p-values are given as one-tailed if predicted and two-tailed otherwise.Regression results are based on the following panel regression: EPSi,tþn¼ b0þ b1CEOnarcissismiþ b2CEOagei,tþn�1þb3CEOchairi,tþn�1 þ b4CEOtenurei,tþn�1 þ b5TenureStarti,t þ b6Genderi þ b7LnATi,tþn�1 þ b8EPSi,t�1 þ b9ROAi,t�1 þb10ROAi,tþn�1 þ b11EPSi,tþn�1 þ b12ROAi,tþn þ UIndustry Dummies þ e.Variables are defined in Table 3.

13 Abnormal DISX is made up of abnormal advertising expense, abnormal research and development expense, andabnormal selling, general, and administrative expense. If we run regressions using each of the individualcomponents rather than the summary measure, we still do not find statistical significance on the CEO narcissismvariable (p ¼ 0.422 for abnormal advertising expense; p ¼ 0.776 for abnormal research and developmentexpense; and p ¼ 0.952 for abnormal selling, general, and administrative expense).



suggests that narcissistic CEOs make operational decisions such as lenient credit terms, sales

discounts, and overproduction to increase reported EPS.

Stock Price Results

Table 8 presents the results of the panel regression examining the association of CEO narcissism

with stock price. We find that CEO narcissism is statistically significant and positively related to

TABLE 6

Accounting Choices

Panel A: CEO Narcissism and Discretionary Accruals: Panel Regression

Variable

Signed Accruals Absolute Accruals

Coefficient p-value Coefficient p-value

Narcissismi �0.002 0.595 0.002 0.551

LnATi,tþn 0.010 0.107 �0.011** 0.038

D/Ei,tþn �0.000*** 0.002 0.000 0.118

B/Mi,tþn 0.027* 0.054 �0.002 0.841


Firm-years 933 933

CEOs 249 249

Overall R2 0.08 0.13

Regression results are based on the following panel regression: Accrual Proxyi,tþn ¼ b0 þ b1CEOnarcissismi þb2LnATi,tþn þ b3D/Ei,tþn þ b4B/Mi,tþn�1 þ UIndustry Dummies þ e.

Panel B: CEO Narcissism and Stock Buybacks: Logistic Regression

Variable

Buyback Firm (Yes ¼ 1; No ¼ 0)

Odds Ratio p-value

Narcissismi 1.017 0.724

ROEi,tþn 2.179** 0.000

D/Ei,tþn 0.941** 0.000

B/Mi,tþn 0.417** 0.000

LnATi,tþn 1.217*** 0.004

% Institutional Ownershipi,tþn 2.479* 0.053

CEOagei,tþn�1 0.998 0.887

CEOchairi,tþn�1 1.256 0.173

Year Included

Firm-years 1,063

CEOs 270

Pseudo R2 0.05

Regression results are based on the following logistic regression: Buybacki,tþn ¼ b0 þ b1CEOnarcissismi þ b2ROEi,tþn

þ b3D/Ei,tþn þ b4B/Mi,tþn þ b5LnATi,tþn þ b6%Institutional Ownershipi,tþn þ b7CEOagei,tþn�1 þ b8CEOchairi,tþn�1 þb9Year þ e.




stock price (1.728; p¼0.071)14 supporting H3. Consistent with prior research, we find evidence that

the appropriate control variables are significant (Lagged price [0.535; p¼0.000], current period EPS

[1.670; p ¼ 0.000], book-to-market ratio [�12.090; p ¼ 0.003], and industry controls are all

significant).

TABLE 6 (continued)

Panel C: CEO Narcissism and EPS Accretion: Panel Regression

Variable

EPS Accretion

Coefficient p-value

Narcissismi �0.026 0.527

ROEi,tþn �0.264* 0.052

D/Ei,tþn 0.015** 0.051

B/Mi,tþn �0.041 0.694

LnATi,tþn �0.046 0.201

% Institutional Ownershipi,tþn �0.038 0.935

CEOagei,tþn�1 �0.004 0.474

CEOchairi,tþn�1 �0.030 0.675

Industry Included

Firm-years 1,063

CEOs 270

Overall R2 0.07

Regression results are based on the following panel regression: EPS Accretioni,tþn¼b0þb1CEOnarcissismiþb2ROEi,tþn

þ b3D/Ei,tþn þ b4B/Mi,tþn þ b5LnATi,tþn þ b6%Institutional Ownershipi,tþn þ b7CEOagei,tþn�1 þ b8CEOchairi,tþn�1 þUIndustry Dummies þ e.

Panel D: CEO Narcissism and Restatements: Logistic Regression

Variable

Restatement (Yes ¼ 1; No ¼ 0)

Odds Ratio p-value

Narcissismi 0.917 0.561

CEOchairi,tþn�1 0.568 0.238

D/Ei,tþn 1.062* 0.074

CF/NIi,tþn 1.043 0.341

LnATi,tþn 1.019 0.919

ROAi,tþn 0.428 0.839

Year Included

Firm-years 536

CEOs 169

Pseudo R2 0.05

Regression results are based on the following logistic regression: Restatementi,tþn ¼ b0 þ b1CEOnarcissismi þb2CEOchairi,tþn�1 þ b3D/Ei,tþn þ b4CF/NIi,tþn þ b5LnATi,tþn þ b6ROAi,tþn þ b7Yearþ e.


14 Using the binary measure of narcissism, the coefficient is 1.988 and the p-value is 0.032.



TABLE 6 (continued)

Panel E: CEO Narcissism and Meet-or-Beat Behavior: Logistic Regression

Variable

Meet-or-Beat (Yes ¼ 1; No ¼ 0)

Odds Ratio p-value

Narcissismi 1.151** 0.041

ROAi,tþn 2.550*** 0.000

B/Mi,tþn 1.503* 0.098

Returni,tþn 3.190*** 0.000

Year Included

Industry Included

Firm-years 706

CEOs 189

Pseudo R2 0.24

*, **, *** Significant at the 0.10, 0.05, and 0.01 level, respectively.p-values are two-tailed.Regression results are based on the following logistic regression: Meet-or-Beati,tþn ¼ b0 þ b1CEOnarcissismi þb2ROAi,tþn þ b3B/Mi,tþn þ b4Returni,tþn þ b5Year þ UIndustry Dummies þ e.Variables are defined in Table 3.

TABLE 7

Operational ChoicesCEO Narcissism and Earnings Management through Real-Activities Manipulations

Panel Regression

Variable

Abnormal CFO Abnormal PROD Abnormal DISX

Coefficient p-value Coefficient p-value Coefficient p-value

Narcissismi 0.031** 0.011 0.043* 0.072 �0.001 0.977

% Institutional Ownershipi,tþn �0.096 0.309 �0.207 0.491 0.023 0.932

Bonus Compensationi,tþn �0.356** 0.025 0.783** 0.017 1.030** 0.020

Non-Cash Compensationi,tþn �0.097 0.175 �0.452** 0.034 0.316 0.210

ROAi,tþn �0.606* 0.102 �2.924** 0.024 0.843 0.423

LnCSHOi,tþn �0.065** 0.031 �0.194* 0.050 0.083 0.394

LnATi,tþn 0.030 0.476 0.221* 0.081 0.093 0.400

D/Ei,tþn �0.000 0.209 �0.000** 0.025 �0.000 0.286

B/Mi,tþn �0.003 0.954 �0.072 0.355 0.057 0.514

CRi,tþn�1 �0.035 0.203 0.068 0.310 0.158 0.211

MFGi �0.137*** 0.001 �0.228*** 0.005 0.223** 0.025

DAcci,tþn 0.154 0.229 0.464* 0.096 �0.943* 0.081

Meet-or-Beati,tþn 0.082** 0.030 0.088 0.187 �0.048 0.697

CEOchairi,tþn�1 �0.039 0.352 �0.056 0.485 0.078 0.565

Firm-years 575 575 575

CEOs 156 156 156

Overall R2 0.083 0.061 0.043

*, **, *** Significant at the 0.10, 0.05, and 0.01 level, respectively.p-values are two-tailed.Regression results are based on the following panel regression: Real-Activities Manipulation Proxyi,tþn ¼ b0 þb1CEOnarcissismiþ b2% Institutional Ownershipi,tþnþ b3Bonus Compensationi,tþnþ b4Non-Cash Compensationi,tþnþb5ROAi,tþnþb6LnCSHOi,tþnþb7LnATtþnþb8D/Ei,tþnþb9B/Mi,tþnþb10CRi,tþn�1þb11MFGiþb12DAcci,tþnþb13Meet-or-Beati,tþn þ b14CEOchairi,tþn�1 þ e.Variables are defined in Table 3.



DISCUSSION AND CONCLUSION

Narcissists crave positive feedback and attention and seek opportunities that affirm their

inflated sense of self-importance and superiority. The quarterly and annual releases of accounting

information create a consistent opportunity for narcissistic CEOs to gain positive recognition about

their company’s performance. Narcissistic characteristics can facilitate high levels of performance

by CEOs but may also enable CEOs to take advantage of their influence over financial accounting

and reporting. We document a significantly positive relationship between CEO narcissism and

reported financial performance numbers.

Our earnings management analysis provides initial evidence that narcissistic CEOs are more

likely to engage in real activities, such as increases to production and sales, in order to increase

accounting performance measures. We do not find evidence that increases to discretionary accruals

are more likely to occur with narcissistic CEOs. Our results indicate that narcissistic CEOs pursue

operational strategies to boost reported earnings rather than employing accrual-related

manipulations or accounting decisions. Accrual and accounting-based manipulations can damage

or destroy a reputation, especially if such misconduct escalates to fraudulent levels. Conversely,

earnings management through real activities can be done legitimately and can achieve the desired

outcome of increased publicly reported performance—thereby bringing attention and recognition to

the CEO. Our results are consistent with findings in psychology research that indicate that

narcissists are self-focused and driven by the desire to gain esteem, recognition, and monetary

incentives (Foster and Brennan 2011).

The extent to which narcissistic traits in CEOs ultimately result in more functional or

dysfunctional accounting outcomes remains an empirical question. It is likely that there are both

TABLE 8

CEO Narcissism and Stock PricePanel Regression

Variable Pred. Coefficient p-value Coefficient p-value

Proxies for Narcissism

Narcissismi þ 1.728* 0.071

Narcissism Binaryi þ 1.988** 0.032

Control Variables

Pricei,tþn�1 0.535*** 0.000 0.538*** 0.000

EPSi,tþn 1.670*** 0.000 1.679*** 0.000

BVi,tþn 0.000 0.195 0.000 0.267

B/Mi,tþn �12.090*** 0.003 �12.065*** 0.003

D/Ei,tþn 0.002 0.406 0.002 0.423

LnATi,tþn�1 �0.389 0.581 �0.291 0.693


Firm-years 1,118 1,118

CEOs 283 283

Overall R2 0.618 0.618

*, **, *** Significant at the 0.10, 0.05, and 0.01 level, respectively.p-values are given as one-tailed if predicted and two-tailed otherwise.Regression results are based on the following panel regression: Pricei,tþn ¼ b0 þ b1CEOnarcissismi þ b2Pricei,tþn�1 þb3EPSi,tþn þ b4BVi,tþn þ b5B/Mi,tþn þ b6D/Ei,tþn þ b7LnATi,tþn�1 þ UIndustry Dummies þ e.Variables are defined in Table 3.



advantageous and disadvantageous outcomes resulting from a CEO’s narcissism (or lack thereof ).

Future research can examine alternative accounting decisions and outcomes affected by CEO

narcissism. Additionally, future research can explore avenues to better understand the impact of

CEO narcissism on accounting policies and decisions.

Limitations

While our statistical tests show significant relationships between our variables of interest, there

are limitations to consider. First, we are constrained in making any causal inferences about the

relationship between CEO narcissism and our performance measures due to the archival nature of

the data. Second, our sample consists of Fortune 500 firms, which limits our ability to generalize to

smaller firms and private firms. Finally, we use an indirect, unobtrusive measure of narcissism.

While this measure has been used and validated in previous research, the administration of well-

known personality instruments such as the Narcissistic Personality Inventory (NPI) (Raskin and

Terry 1979, 1988) could provide a more direct measurement of narcissism.

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