CEO NARCISSISM AND REAL ACTIVITY MANAGEMENT
DOI:
https://doi.org/10.51320/rmc.v26i1.1637Keywords:
Narcissism, Chief Executive Officer, Real activity earnings managementAbstract
This study aims to examine the influence of narcissistic Chief Executive Officers (CEOs) on real earnings management. The analysis is based on a sample of 111 companies, comprising 543 firm-year observations of publicly traded firms listed on B3 (the Brazilian Stock Exchange). CEO narcissism was measured using a linguistic approach, calculating the proportion of first-person singular possessive and personal pronouns relative to the total use of first-person pronouns in CEOs’ speech during earnings conference calls. Earnings management was evaluated using the three models proposed by Roychowdhury (2006), which detect manipulation through operational cash flow, production costs, and discretionary expenditures. To test the proposed hypotheses, panel data modeling was employed using Generalized Least Squares (GLS), with corrections for heteroscedasticity and autocorrelation. The findings indicate that CEOs exhibiting higher levels of narcissism, particularly when serving on the board of directors, are more likely to engage in earnings management through operational cash flow and discretionary expenses. The results also suggest a substitutive relationship between accrual-based earnings management and real activities manipulation. Moreover, during periods of economic recession, the level of earnings management tends to decline in terms of operational cash flow manipulation, but increases in the manipulation of discretionary expenditures. These findings contribute to corporate governance literature by emphasizing the importance of implementing monitoring mechanisms and adopting more rigorous hiring practices to mitigate potential unethical behavior associated with executive narcissism.
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Copyright (c) 2025 Niara Gonçalves da Cruz, Renata Turola Takamatsu, Fernanda Alves Cordeiro
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