Narcissistic CEOs and Tools for Mitigating Agency Problems
DOI:
https://doi.org/10.15678/krem.18678Keywords:
agency theory, narcissistic CEO, managerial ownership, dividends, debtAbstract
Objective: There is little evidence on the choice of tools to mitigate agency problems. Because these tools are chosen by the CEOs (chief executive officers), we believe that their personality matters. We include the narcissism of the CEO to check whether it is an important factor affecting these kinds of decisions. The research aims to determine what tools to mitigate agency problems are chosen by narcissistic CEOs. We consider debt, dividends, and managerial ownership as potential tools for mitigating agency problems.
Research Design & Methods: Our sample covers 56 Polish companies over the six years of 2017–2022. We employ linear mixed models analysis.
Findings: We find that narcissistic CEOs refrain from ownership in the company they manage. They have no impact on the debt ratio and dividend payouts.
Implications / Recommendations: We believe that narcissistic CEOs use managerial ownership tools to diminish their risk (in order not to be associated with it in case something goes wrong). However, this increases the agency problems. Owners should be aware of such behaviour, bearing in mind the negative impact of a narcissistic CEO on the team and work efficiency.
Contribution: Our research contributes to the upper-echelon (top management) theory and corporate behavioural finance. The contribution lies in combining corporate finance issues (e.g., agency relation, debt ratio, dividend) and behavioural finance (CEO personal traits).
Downloads
References
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
Aabo, T., Hoejland, F., & Pedersen, J. (2021). Do Narcissistic CEOs Rock the Boat? Review of Behavioral Finance, 13(2), 141–164. https://doi.org/10.1108/rbf-09-2019-0118
American Psychiatric Association. (2013). Diagnostic and Statistical Manual of Mental Disorders (5th ed.). American Psychiatric Publishing. https://doi.org/10.1176/appi.books.9780890425596
Ashton-James, C. E., & Levordashka, A. (2013). When the Wolf Wears Sheep’s Clothing: Individual Differences in the Desire to Be Liked Influence Nonconscious Behavioural Mimicry. Social Psychological and Personality Science, 4(6), 643–648. https://doi.org/10.1177/1948550613476097
Back, M. D., Küfner, A. C. P., Dufner, M., Gerlach, T. M., Rauthmann, J. F., & Denissen, J. J. A. (2013). Narcissistic Admiration and Rivalry: Disentangling the Bright and Dark Sides of Narcissism. Journal of Personality and Social Psychology, 105(6), 1013–1037. https://doi.org/10.1037/a0034431
Bajo, E., Jankensgård, H., & Marinelli, N. (2022). Me, Myself and I: CEO Narcissism and Selective Hedging. European Financial Management, 28(3), 809–833. https://doi.org/10.1111/eufm.12328
Boddy, C. R. (2021). Corporate Psychopaths and Destructive Leadership in Organizations. In: S. M. Camgöz, Ö. T. Ekmekci (Eds), Destructive Leadership and Management Hypocrisy: Advances in Theory and Practice (pp. 67–81). Emerald Publishing Limited. https://doi.org/10.1108/978-1-80043-180-520211005
Brunell, A. B., Gentry, W. A., Campbell, W. K., Hoffman, B. J., Kuhnert, K. W., & DeMarree, K. G. (2008). Leader Emergence: The Case of the Narcissistic Leader. Personality and Social Psychology Bulletin, 34(12), 1663–1676. https://doi.org/10.1177/0146167208324101
Bukalska, E., & Dycha, G. (2024). Compensation of Narcissistic CEOs with Stake in Equity: A Study of Polish Companies. Business Management, 34(1), 26–46. https://doi.org/10.58861/tae.bm.2024.1.02
Byun, K.-A., & Al-Shammari, M. (2021). When Narcissistic CEOs Meet Power: Effects of CEO Narcissism and Power on the Likelihood of Product Recalls in Consumer-packaged Goods. Journal of Business Research, 128, 45–60. https://doi.org/10.1016/j.jbusres.2021.02.001
Campbell, W. K., Hoffman, B. J., Campbell, S. M., & Marchisio, G. (2011). Narcissism in Organizational Contexts. Human Resource Management Review, 21(4), 268–284. https://doi.org/10.1016/j.hrmr.2010.10.007
Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The Real Effects of Debt (BIS Working Papers No. 352). Bank for International Settlements. Retrieved from: https://www.bis.org/publ/work352.htm (accessed: 10.08.2023).
Chatterjee, A., & Hambrick, D. C. (2007). It’s All about Me: Narcissistic Chief Executive Officers and Their Effects on Company Strategy and Performance. Administrative Science Quarterly, 52(3), 351–386. https://doi.org/10.2189/asqu.52.3.351
Chatterjee, A., & Pollock, T. G. (2017). Master of Puppets: How Narcissistic CEOs Construct Their Professional Worlds. Academy of Management Review, 42(4), 703–725. https://doi.org/10.5465/amr.2015.0224
Christian, P. G., & Sulistiawan, D. (2022). When Narcissus Became a CEO: CEO Narcissism and Its Effect on Earnings Management. Jurnal Dinamika Akuntansi dan Bisnis, 9(2), 135–148. https://doi.org/10.24815/JDAB.V9I2.24947
Cragun, O. R., Olsen, K. J., & Wright, P. M. (2020). Making CEO Narcissism Research Great: A Review and Meta-analysis of CEO Narcissism. Journal of Management, 46(6), 908–936. https://doi.org/10.1177/0149206319892678
de Jong, A., & van Dijk, R. (1998). Determinants of Leverage and Agency Problems (CentER Discussion Paper Vol. 1998-82). Retrieved from: https://pure.uvt.nl/ws/portalfiles/portal/529666/82.pdf (accessed: 15.08.2023).
Fahy, P. (2017). How to Avoid Hiring a Narcissist: A Toxic Hire Will Hurt Your Team and Your Leadership Credibility. The Journal of Medical Practice Management, 33(3), 146–149.
Fama, E. F., & French, K. R. (2002). Testing Trade-off and Pecking Order Predictions about Dividends and Debt. The Review of Financial Studies, 15(1), 1–33. https://doi.org/10.1093/rfs/15.1.1
Florackis, C., Kanas, A., & Kostakis, A. (2015). Dividend Policy, Managerial Ownership and Debt Financing: A Non-parametric Perspective. European Journal of Operational Research, 241(3), 783–795. https://doi.org/10.1016/j.ejor.2014.08.031
Giacomin, G., Battaglini, A. M., & Rule, N. O. (2018). Grandiose Narcissists Seek Status Selectively. Social Cognition, 36(1), 20–42. https://doi.org/10.1521/soco.2018.36.1.20
Gong, Y., Li, J., & Chen, L. (2018). Humble and Narcissistic Leadership in Team Potency and Creativity: A Tale of Two Styles. Academy of Management Proceedings, 2018(1), 15268. https://doi.org/10.5465/ambpp.2018.15268abstract
Hackbarth, D. (2008). Managerial Traits and Capital Structure Decisions. Journal of Financial and Quantitative Analysis, 43(4), 843–881. https://doi.org/10.1017/S002210900001437X
Ham, C., Seybert, N., & Wang, S. (2018). 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
Hambrick, D. C. (2007). Upper Echelons Theory: An Update. Academy of Management Review, 32(2), 334–343. https://www.jstor.org/stable/20159303
Hambrick, D. C., & Mason, P. A. (1984). Upper Echelons: The Organization as a Reflection of Its Top Managers. Academy of Management Review, 9(2), 193–206. https://doi.org/10.5465/amr.1984.4277628
Hamstra, M. R., Schreurs, B., Jawahar, I. M., Laurijssen, L. M., & Hünermund, P. (2021). Manager Narcissism and Employee Silence: A Socio-analytic Theory Perspective. Journal of Occupational and Organizational Psychology, 94(1), 29–54. https://doi.org/10.1111/joop.12337
Heaton, J. B. (2002). Managerial Optimism and Corporate Finance. Financial Management, 31, 33–45. https://doi.org/10.2307/3666221
Jensen, G. R., Solberg, D. P., & Zorn, T. S. (1992). Simultaneous Determination of Insider Ownership, Debt, and Dividend Policies. The Journal of Financial and Quantitative Analysis, 27(2), 247–263. https://doi.org/10.2307/2331370
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, 76(2), 323–329.
Jonason, P. K., & Schmitt, D. P. (2012). What Have You Done for Me Lately? Friendship-selection in the Shadow of the Dark Triad Traits. Evolutionary Psychology, 10(3), 400–421. https://doi.org/10.1177/147470491201000303
Kanojia, S., & Bhatia, B. S. (2022). Corporate Governance and Dividend Policy of the US and Indian Companies. Journal of Management and Governance, 26(4), 1339–1373. https://doi.org/10.1007/s10997-021-09587-5
Lubit, R. (2002). The Long-term Organizational Impact of Destructively Narcissistic Managers. Academy of Management Perspectives, 16(1), 127–138. https://doi.org/10.5465/ame.2002.6640218
Malmendier, U., & Tate, G. (2005). CEO Overconfidence and Corporate Investment. Journal of Finance, 60(6), 2661–2700. https://doi.org/10.1111/j.1540-6261.2005.00813.x
Maynard, D. C., Brondolo, E. M., Connelly, C. E., & Sauer, C. E. (2015). I’m Too Good for This Job: Narcissism’s Role in the Experience of Overqualification. Applied Psychology, 64(1), 208–232. https://doi.org/10.1111/apps.12031
Millon, T. (2012). On the History and Future Study of Personality and Its Disorders. Annual Review of Clinical Psychology, 8, 1–19. https://doi.org/10.1146/annurev-clinpsy-032511-143113
Nevicka, B., De Hoogh, A. H. B., Den Hartog, D. N., & Belschak, F. D. (2018). Narcissistic Leaders and Their Victims: Followers Low on Self-esteem and Low on Core Self-evaluations Suffer Most. Frontiers in Psychology, 9, 422. https://doi.org/10.3389/fpsyg.2018.00422
Nevicka, B., & Sedikides, C. (2021). Employee Narcissism and Promotability Prospects. Journal of Personality, 89(4), 847–862. https://doi.org/10.1111/jopy.12619
Oktari, V., & Dianawati, W. (2023). Dividend Policy, CEO Narcissism, and Its Influence on Companies in Indonesia: A Behavioral Theory of the Firm Approach. Cogent Economics & Finance, 11(2), 2276560. https://doi.org/10.1080/23322039.2023.2276560
Oldale, B. (2020). Narcissistic Personality Disorder: The Good, the Bad, and the Ugly. Journal of Integrated Studies, 12(1), 1–35. Retrieved from: https://jis.athabascau.ca/index.php/jis/article/view/310 (accessed: 11.09.2023).
Panda, B., & Leepsa, N. M. (2017). Agency Theory: Review of Theory and Evidence on Problems and Perspectives. Indian Journal of Corporate Governance, 10(1), 74–95. https://doi.org/10.1177/0974686217701467
Polyzos, E., & Siriopoulos, C. (2024). Autoregressive Random Forests: Machine Learning and Lag Selection for Financial Research. Computational Economics, 64, 225–262. https://doi.org/10.1007/s10614-023-10429-9
Rahmawati, A., Moeljadi, M., & Sumiati, D. (2018). The Effects of Managerial Ownership, Leverage, Dividend Policy in Minimizing Agency Problem. Investment Management and Financial Innovations, 15(4), 273–282. https://doi.org/10.21511/imfi.15(4).2018.22
Schmid, E. A., Knipfer, K., & Peus, C. V. (2021). Narcissistic Leaders – Promise or Peril? The Patterns of Narcissistic Leaders’ Behaviors and Their Relation to Team Performance. Frontiers in Psychology, 12, 660452. https://doi.org/10.3389/fpsyg.2021.660452
Schnure, K. A. (2010). Narcissism Levels and Ratings of Executive Leadership Potential. Paper presented at the 25th Annual Conference of the Society for Industrial and Organizational Psychology, Atlanta, GA.
Shen, Y., Mollica, V., & Dalla Costa, A. F. (2024). The Bright Side of CEO Narcissism and Its Impact on Accounting Conservatism. Journal of Accounting Literature, 46(1), 1–25. https://doi.org/10.1108/jal-01-2023-0006
Shrestha, N. (2020). Detecting Multicollinearity in Regression Analysis. American Journal of Applied Mathematics and Statistics, 8(2), 39–42. https://doi.org/10.12691/ajams-8-2-1
Vo, D. H., & Nguyen, V. T. (2014). Managerial Ownership, Leverage and Dividend Policies: Empirical Evidence from Vietnam’s Listed Firms. International Journal of Economics and Finance, 6(5), 274–284. https://doi.org/10.5539/ijef.V6n5p274
Weiskirchner-Merten, K. (2023). Capital Budgeting and Managerial Empire Building. Accounting and Business Research, 53(4), 416–438. https://doi.org/10.1080/00014788.2021.2021502
Zhang, L., Liang, B., Bi, D., Zhou, Y., & Yu, X. (2021). Relationships among CEO Narcissism, Debt Financing and Firm Innovation Performance: Emotion Recognition Using Advanced Artificial Intelligence. Frontiers in Psychology, 12, 734777. https://doi.org/10.3389/fpsyg.2021.734777
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Krakow University of Economics
This work is licensed under a Creative Commons Attribution 4.0 International License.
