Abstract
We investigate whether CEO narcissism affects a firm’s credit risk from bondholders' perspective. We find that CEO narcissism is significantly and positively related to corporate bond yield spread (namely credit risk), indicating that bondholders care more about the increase on asset value volatility and financial constraint than the increase on asset value due to the risk-taking behaviors conducted by a narcissistic CEO. The implications are empirically supported by the path analyses. In addition, better corporate governance quality (especially internal governance), higher management team background homogeneity, and lower likelihood of future growth weaken the positive effect of CEO narcissism on bond yield spread while higher management team shared working experience, cash conversion cycle, and R&D intensity all enhance the CEO narcissism effect. Moreover, we also find that bondholders have less concern about a narcissistic CEO when the CEO simultaneously has the personality traits of conscientiousness and openness. Finally, our findings are robust when considering endogeneity issues and controlling for several well-known CEO-, firm-, and bond-level characteristics.
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