Firm performance as a mediator of the relationship between CEO narcissism and positive rhetorical tone

Abstract

Purpose The purpose of this paper is to examine how chief executive officers’ (CEOs) narcissism impacts firm performance and how this, in turn, affects a CEO’s positive rhetorical tone. Design/methodology/approach The narcissism score is measured by using an analytical composite score for each CEO based on eight factors. The paper uses textual analysis on a sample of 848 CEO letters of US firms over the period 2010–2019. WarpPLS software, version 7.0 was used to conduct structural equation modeling through the partial least squares because a non-linear algorithm exists between CEO narcissism, firm performance and positive tone, and the values of path coefficients moved from non-significant to significant. Findings The results suggest that performance partially mediates the relationship between CEO narcissism and positive tone. This indicates that not all the positivity expressed by narcissistic CEOs is opportunism; some of it is indeed driven by better performance. The reported findings indicate that firm performance explains one-quarter of a CEO’s positive words, whereas some three-quarters of the positivity is driven by a narcissistic CEO (i.e. opportunism). A comparison of letters signed by highly narcissistic and less narcissistic leaders reveals that among those letters signed by highly narcissistic leaders, firm performance plays a significant mediating role between narcissistic tendencies and positive tone. However, among those with less narcissistic score, there is no evidence that performance mediates the tone and narcissism. Interestingly, both highly narcissistic and less narcissistic CEOs use positive words and optimistic expressions even when their firms perform poorly or negatively. Research limitations/implications The results help shareholders be aware that CEOs may opportunistically use their personal characteristics and language to manipulate them. Data limitations about women CEOs were one of the reasons behind the small proportion of women CEOs in this study, making it low in generalizability. Originality value A comprehensive review showed that none of previous studies examined the more ambiguous relationship between a CEO’s narcissist tendency, the firm’s performance, and CEO rhetorical tone. As one set of studies focused on Narcissism → Performance, and the other one on Performance → Tone, this current study completes the picture with Narcissism → Performance → Tone.

“Tone at the top”: management’s discussion and analysis and audit quality

“…It will narrate the management's version (or what they want to project) of the firm's past, present and future performance. The MD&A is a means of storytelling that will put the firm's financial numbers into perspective and enable investors to understand them (Tailab and Burak, 2018). Thus, the MD&A will be shaped by the management's desires, perspectives and expectations and what has been collectively defined as the "tone at the top."…”

CEO Narcissism in Arab Equity Markets and Its Repercussions

“…According to Tailab et al, (2023) both highly narcissistic and less narcissistic CEOs use positive words and optimistic expressions even when their firms perform poorly or negatively. But Illescas and Zhou, (2022) Using a sample of S&P 500 companies to develop a measure of CEO narcissism and investigates whether and how it impacts the precision and dispersion of analyst forecasts.…”

“…(Zhang et al, 2018). There has been a lot of scholarly focus on narcissistic CEOs and their influence on corporate performance ever since the most-cited paper on the issue, empirical research by , was published (Ham et al, 2018;Tailab et al, 2023). Several studies focused on the correlation between CEO traits and corporate performance.…”