CEO power and CEO hubris: a prelude to financial misreporting?

Abstract

Purpose – The purpose of this paper is to explore how the tension between a firm’s CEO power features and externally observable hubris attributes may determine the likelihood of financial misreporting. Design/methodology/approach – The analyses are based on a sample of 16 Canadian firms for which there were formal accusations of financial reporting fraud filed by securities regulators, assorted with regulatory sanctions; as well as 16 firms matched on industry and size with no evidence of financial misreporting. Findings – The findings suggest that firms accused of financial misreporting exhibit features of strong CEO power and hubris as reflected in their relations with the self, others and the world. Governance mechanisms do not seem to be effective in detecting or preventing financial misreporting, with independent boards of directors proving especially ineffectual. Social implications – The findings suggest that formal governance processes may get coopted by a CEO with hubristic tendencies. Originality/value – While the tentative model is more explanatory than predictive, it opens up a new research area as it brings the concept of hubris into accounting research.

Differentiating leader hubris and narcissism on the basis of power

“…Narcissistic and hubristic CEOs pursue similar investment policies such that they overinvest in R&D and M&A (Ham et al., 2018) (cf., Roll’s (1986) hubris hypothesis) and are prone to taking higher risks (Chatterjee and Hambrick, 2011; Li and Tang, 2010). They also engage in fraudulent practices of financial misreporting and tax sheltering (Cormier et al., 2016; Olsen and Stekelberg, 2015), believing they are above the law. However, CEO narcissism and hubris appear to have different influences on corporate social responsibility (CSR).…”

Towards an organisational theory of hubris: Symptoms, behaviours and social fields within finance and banking

“…Bianchi and Mohliver, 2016; Petit and Bollaert, 2012), on the assumption that their position of power makes them more inclined to develop hubris than the general population (Hiller and Hambrick, 2005). Researchers have argued that hubristic CEOs ‘develop an overambitious vision’ (Kroll et al, 2000: 454), pay insufficient attention to strategy formulation and sustainability (Grant and Visconti, 2006), cause greater losses for shareholders from hubris driven acquisitions (McManus, 2016), prefer their own intuitive judgements over relevant information (Claxton et al, 2015) and are more likely to engage in financial misreporting (Cormier et al, 2016). In short, hubristic individuals are depicted as paragons of vice.…”

Big Egos Can Be Green: A Study of CEO Hubris and Environmental Innovation

“…The aim of the paper is to analyse whether and how CEO hubris affects the level of environmental innovation. Prior research has highlighted the consequences of CEO hubris for corporate acquisitions (Hayward and Hambrick, 1997;Malmendier and Tate, 2008); innovation and risktaking strategies (Hirshleifer, Low and Teoh, 2012;Lawrence, Pazzaglia and Sonpar, 2011;Li and Tang, 2010;Tang, Li and Yang, 2015); reporting choices (Cormier, Lapointe-Antunes, Magnan, 2016); financial performance (Park et al, 2015) and corporate social responsibility (CSR) . 1 Although a large body of research documents the effects of hubris-influenced decisions, the topic still deserves attention for at least two reasons.…”