Department of Economics and Business Economics

Corporate risk and the humpback of CEO narcissism

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Documents

DOI

  • Tom Aabo
  • Nicklas Bang Eriksen, Orsted A/S

Purpose: The purpose of this paper is to investigate the association between CEO narcissism and corporate risk taking. Design/methodology/approach: The authors provide a novel and unobtrusive measure of CEO narcissism based on LinkedIn profiling. The authors investigate the relationship between CEO narcissism and corporate risk taking (stock return volatility) for a sample of 475 US manufacturing firms in the period 2010-2014. Findings: The authors find an inverse U-shape relationship between CEO narcissism and stock return volatility. The inverse U-shape relationship (the “humpback”) is caused by the paradoxical nature of the narcissistic personality in which the self-esteem is high but at the same time fragile with a combination of self-admiration and a constant need of having this positive self-view confirmed. The results are robust to alternative specifications of CEO narcissism and corporate risk taking. The results are economically meaningful. Thus, a moderate degree of CEO narcissism – as compared to a very low or a very high level of CEO narcissism – is associated with an increase in corporate risk taking of approximately 12 percent. Originality/value: Previous literature provides multiple analyses on the association between managerial overconfidence and corporate decisions. As opposed to overconfidence, narcissism is a personality trait having both cognitive and behavioral dimensions. This paper provides a novel contribution to the growing literature on the association between managerial biases/traits and corporate decision-making.

Original languageEnglish
JournalReview of Behavioral Finance
Volume10
Issue3
Pages (from-to)252-273
Number of pages22
ISSN1940-5979
DOIs
Publication statusPublished - 2018

    Research areas

  • Behavioural corporate finance, CEO narcissism, Corporate risk taking, LinkedIn profiles

See relations at Aarhus University Citationformats

Download statistics

No data available

ID: 130996173