Do narcissistic CEOs rock the boat?

Abstract

PurposeThe purpose of this paper is to investigate the role of narcissistic supply for the association between CEO narcissism and corporate risk taking.Design/methodology/approachThe authors investigate a sample of 281 non-financial S&P 1500 firms and a corresponding 457 CEOs in the 10-yr period 2006–2015.FindingsThe association between CEO narcissism and corporate risk taking depends on the admiration, attention, and affirmation of own superiority (“narcissistic supply”) that the CEO receives given her/his current position. Thus, a narcissistic CEO with an insufficient narcissistic supply (small firm/small compensation) will crave for more and take more risks (“rock the boat”) while a narcissistic CEO with a sufficient narcissistic supply (large firm/large compensation) will protect the status quo and be reluctant to take new risks. Specifically, the authors find that a change from a slightly narcissistic CEO to a strongly narcissistic CEO, for positions entailing limited (abundant) narcissistic supply, is associated with an increase (a decrease) in corporate risk of 6%–8% (11%–27%).Originality/valuePrevious research indicates a positive association between CEO narcissism and corporate risk taking in specific domains such as M&A and R&D activities. This paper provides a novel contribution to the existing literature by identifying and assessing the important role of narcissistic supply for the association between CEO narcissism and corporate risk taking in general.

Watch me go big: CEO narcissism and corporate acquisitions

“…Thus, Aabo and Eriksen (2018) show that very narcissistic CEOs take less risk than moderately narcissistic CEOs. Furthermore, Aabo et al (2020) show that a high amount of narcissistic supply (large firm and high compensation) moderates the risk taking by narcissistic CEOs.…”

CEO Narcissism and Global Performance Variance in Multinational Enterprises: The Roles of Foreign Direct Investment Risk‐Taking and Business Group Affiliation

“…Although this term is statistically insignificant in Model 1, it is negative and significant in Model 2 in both Tables 4 and 5. The first set of results is at odds with those of Aabo, Hoejland and Pedersen (2021), suggesting that within the context of Korean MNEs, narcissistic CEOs’ risk‐taking is not significantly influenced by internal narcissistic supply. However, as performance is the quintessential enduring zone outcome, observed over time, internal narcissistic supply somewhat moderates narcissistic CEOs’ non‐risk‐taking decisions, helping to smooth performance variability.…”

“…They thus explored and found the non‐linear relationship between CEO narcissism and risk‐taking. Aabo, Hoejland and Pedersen (2021) further develop this line of argument. However, instead of exploring the non‐linear relationship, they consider the moderation effects of ‘narcissistic supply’ and base their arguments on prospect theory (Kahneman and Tversky, 1979) in relation to social aspiration levels (Greve, 1998).…”

“…It is worth emphasizing the importance of controlling for 'narcissistic supply'. As mentioned above, we followed Aabo, Hoejland and Pedersen (2021), controlling for 'narcissistic supply' by adding the interaction term CEO narcissism × Firm size in our estimations. Although this term is statistically insignificant in Model 1, it is negative and significant in Model 2 in both Tables 4 and 5.…”

“…‘Narcissistic supply’ therefore moderates CEOs’ risk‐taking. Aabo, Hoejland and Pedersen (2021) empirically showed that, in the full sample, CEO narcissism is negative and statistically insignificant, however, it turns significantly positive once narcissistic supply is controlled for. Building on Aabo, Hoejland and Pedersen (2021), we control for ‘narcissistic supply’ in empirical analysis.…”