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).
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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.
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Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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.
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Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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.
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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
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Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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.
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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.
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Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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
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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.
252 Olsen, Dworkis, and Young
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
‘‘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.
CEO Narcissism and Accounting: A Picture of Profits 253
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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.
254 Olsen, Dworkis, and Young
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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
CEO Narcissism and Accounting: A Picture of Profits 255
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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)
256 Olsen, Dworkis, and Young
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
(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
CEO Narcissism and Accounting: A Picture of Profits 257
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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CEO Narcissism and Accounting: A Picture of Profits 259
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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).
260 Olsen, Dworkis, and Young
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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
Industry Included Included
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.
(continued on next page)
CEO Narcissism and Accounting: A Picture of Profits 261
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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.
(continued on next page)
14 Using the binary measure of narcissism, the coefficient is 1.988 and the p-value is 0.032.
262 Olsen, Dworkis, and Young
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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.
CEO Narcissism and Accounting: A Picture of Profits 263
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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
Industry Included Included
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.
264 Olsen, Dworkis, and Young
Journal of Management Accounting ResearchVolume 26, Number 2, 2014
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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