Article2023

The bright side of CEO narcissism and its impact on accounting conservatism

Yun Shen · Vito Mollica · Aldo Fortunato Dalla Costa

18 citations0/0 files storedJournal of Accounting Literature

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Corporate Governance and Financial Management

Abstract

Purpose This study sheds new light on the personality trait and provides evidence regarding the relation between narcissism and desirable accounting practices, specifically the impact of CEO narcissism on accounting conservatism. Design/methodology/approach The authors test the relation between CEO narcissism and accounting conservatism for a sample of 907 US companies and their corresponding CEOs for the period between 2010 and 2018. The authors apply three established models of accounting conservatism and measure executives' narcissism using a non-intrusive approach ubiquitous in the literature. Findings The authors find that CEO narcissism is associated with speculative accounting practices in the form of timely recognition of positive news and more prudent financial reporting of anticipated negative news. The authors provide the first empirical evidence that, despite its well-known negative effects on corporate financial reporting, executive narcissism can also produce positive outcomes. Originality/value While managerial overconfidence has received much attention, the effects of executives' narcissism are still widely unexplored (Chatterjee and Hambrick, 2007). The authors thus contribute to the literature by investigating the relationship between CEOs' narcissism and accounting conservatism. The authors conjecture CEO narcissism should have a twofold effect on prudent financial reporting. On the one hand, CEOs' narcissism should be associated with low levels of unconditional conservatism due to excessively fast good news recognition. On the other hand, narcissistic executives should be associated with early recognition of negative news and hence with higher levels of conditional conservatism.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields 1977The Population Ecology of Organizations 2003Earnings Management through Real Activities Manipulation 1997The conservatism principle and the asymmetric timeliness of earnings1 1988First-mover advantages 2003Conservatism in Accounting Part I: Explanations and Implications 1990Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice

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