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Narcissistic CEOs and their earnings management

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Abstract

This study investigates the role narcissism in corporate leadership has on the earnings management for a sample of 514 listed companies in Bursa Malaysia between year 2009 and 2015. Using the unobtrusive method and robust panel regression, we find that the narcissistic CEO has positive association with the earnings management. It means that a narcissistic CEO has a tendency to manage corporate earnings to fulfil their ego, which brings a new perspective to agency theory. For shareholders, the number of CEO photographs in the annual report may be an early warning sign of self-centric earnings management.

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Notes

  1. Multiple previous studies used and validated the unobtrusive measure in measuring the CEO narcissism. This research directs the interested reader to Chatterjee and Hambrick (2007, 2011).

  2. Press release refers to any information that disclose to stock exchange authority. It is not included the media publicity. Meanwhile, publicity is more on media yet, it is limited on on-line media that capture by google trends. The limitation of this approach is that we cannot capture off-line (hardcopy/printed) media that may also publish information about the firms. However, we believe that in this digital era, stakeholders are more on on-line media publicity because it is fast and worldwide.

  3. Note that the justification of using unobtrusive method is because CEOs in listed companies are unlikely to join personality test. This correlation is only to show that unobtrusive method does not have difference from NPI.

  4. Result is given upon request due to confidentiality and personal Image law.

  5. We did test the remuneration effect using sub-sampling of low and high remuneration, and find both are significant effects on earnings management. We re-estimate by introducing quadratic remuneration and the results are not significant. It implies earnings management is not about low or high remuneration, it is more on agency issue.

  6. Cohen F2 formula is \({\raise0.7ex\hbox{${R2_{moderation} - R2_{without moderation} }$} \!\mathord{\left/ {\vphantom {{R2_{moderation} - R2_{without moderation} } {1 - R2_{Moderation} }}}\right.\kern-0pt} \!\lower0.7ex\hbox{${1 - R2_{Moderation} }$}}\).

  7. The threshold guideline for Cohen F2 is f2 ≥ 0.02, f2 ≥ 0.15, and f2 ≥ 0.35 represent small, medium, and large effect sizes, respectively.

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Funding

Funding was provided by Universiti Malaysia Sarawak (Grant No. F01/SpMYRA/1680/2018).

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Authors and Affiliations

  1. Fakultas Ekonomi dan Bisnis, Universitas Widya Dharma, Pontianak, 78243, Indonesia

    Maria Kontesa

  2. Faculty of Economics and Business, Universiti Malaysia Sarawak, Kota Samarahan, 94300, Malaysia

    Rayenda Brahmana

  3. Curtin University Singapore, Singapore, 329162, Singapore

    Ashley Hui Hui Tong

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  1. Maria Kontesa
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  2. Rayenda Brahmana
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Correspondence to Rayenda Brahmana.

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Kontesa, M., Brahmana, R. & Tong, A.H.H. Narcissistic CEOs and their earnings management. J Manag Gov 25, 223–249 (2021). https://doi.org/10.1007/s10997-020-09506-0

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