CEO narcissism impacts on earnings management and financial performance

Narcissism as a personality characteristic has some indications such as influence of personal wishes, requesting others to answer, and cognitive bias. Narcissism of managers may have some effects on organizational consequences through the impact on managers` decisions in different fields such as strategy, structure and recruitment. Obviously, narcissism compared with other personal characteristics make managers do activities in order to seek the attention of others that subsequently affects the performance of the organization. According to recent studies, it is argued that narcissism has a vital role in earnings management activities and ideal financial performance exhibition. In this respect, the main goal of this research is to conduct an empirical study of the impact of managers’ narcissism on earnings management and financial performance of listed companies of Tehran Stock Exchange.
Research Questions or hypotheses: The research hypotheses are as follows:First main hypothesis: CEO Narcissism has a significant positive effect on earning management.
First subsidiary hypothesis: CEO narcissism has a significant positive effect on discretionary revenues.
Second subsidiary hypothesis: CEO narcissism has a significant positive effect on discretionary accruals.
Second main hypothesis: CEO narcissism has a significant positive effect on financial performance.
First subsidiary hypothesis: CEO narcissism has a significant positive effect on ROA ratio.
Second subsidiary hypothesis: CEO narcissism has a significant positive effect on PEG ratio.
This study is an ex-post research with a quasi-experimental design. The sample consists of 52 companies listed in Tehran Stock Exchange during 2004-2015. SPSS software, structure equation modelling (SEM), and Image J were used for preparing the data and statistical analysis, respectively.
Statistical analysis using structural equation techniques shows that there is a significant positive relation between managers’ narcissism and earnings management and financial performance indicators. In other words, it was seen that in giving ideal financial performance declaration to stakeholder, more narcissism in managers leads to more tendency to earnings management.