Ceo Narcissism and Over-investment

This study investigates the relationship between CEO narcissism and firm investment efficiency. We study CEO narcissism from a broad perspective byincluding both qualitative and quantitative data on the characteristics of CEO narcissism. Drawing upon the upper echelons and behavioral finance theories, we posit that CEO narcissismis an important determinant of inefficient and distorted investment decisions. Using a large hand-collected dataset that includes 3,235 narcissistic CEO-year observations from 1,948 distinct firms across 45 industries, we find that narcissistic CEOs are more prone to engage in over-investment. Further, our results show that narcissistic CEOs tend to over-invest regardless of the past growth of their firms. Finally, we find that a positive relationship between CEO narcissism and firm over-investment prevails in well-governed firms and in firms with weak corporate governance, indicating that current practices in corporate governance fail to curb the inefficient and distorted investment behavior of narcissistic CEOs. Our findings advance the literature on corporate investment decisions by showing that CEO narcissism is a critical driving force behind firm-level over-investment and that such distorted investment behaviors of narcissistic CEOs tend to persist regardless of past sales growth of their firms or strong corporate governance.